G.R. No.

109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.

BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA, respondents.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that
of the Securities and Exchange Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and

quoted at length by the appellate court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with
the Securities and Exchange Commission on 4 August 1948. The SEC records
show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH
and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA;
on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L.
Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a

letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
effective at the end of this month.

"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter

stating:

"Further to my letter to you today, I would like to have a meeting with

all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like to
have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another

letter stating:
 "The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to
the employees, even attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their self-respect. The result
of such policies is the formation of the union, including the assistant
attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation

and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation
of (the partnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in

the partnership assets plus the profits, rent or interest attributable to
the use of his right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and to
pay petitioners damages for the use thereof despite the dissolution of
the partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's

fees and expense of litigation in such amounts as maybe proven
during the trial and which the Commission may deem just and
equitable under the premises but in no case less than ten (10%) per
cent of the value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership
interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that
the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa
& Lozada." The Commission ruled that, being a partnership at will, the law firm could
be dissolved by any partner at anytime, such as by his withdrawal therefrom,
regardless of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. In its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is

hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties.2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved
partnership and to take charge of the winding up of its affairs. On 4 April 1991,
respondent SEC issued an order denying reconsideration, as well as rejecting the
petition for receivership, and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent

Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and inevitably
caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith;
(c) that the liquidation should be to the extent of Attorney Misa's interest or participation
in the partnership which could be computed and paid in the manner stipulated in the
partnership agreement; (d) that the case should be remanded to the SEC Hearing
Officer for the corresponding determination of the value of Attorney Misa's share in the
partnership assets; and (e) that the appointment of a receiver was unnecessary as no
sufficient proof had been shown to indicate that the partnership assets were in any
such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at
will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith;
and
 3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not

provide for a specified period or undertaking. The "DURATION" clause simply
states:

"5. DURATION. The partnership shall continue so long as mutually

satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to

act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons
and entities with respect to their legal and other affairs; and to appear
for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would
all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion.3

The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability
to give it, and the absence of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership4 but that it can result in a liability for
damages.5

In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.6 Among partners,7 mutual agency arises and
the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished from
the winding up of, the business.8 Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in
its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring
partner or the heirs of a deceased partner, as the case may be. In the event of
any disagreement between the said appraisers a third appraiser will be appointed
by them whose decision shall be final. The share of the retiring or deceased
partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid
monthly within the first ten (10) days of every month in installments of not less
than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal,
from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa did
not act in bad faith. Public respondents viewed his withdrawal to have been spurred by
"interpersonal conflict" among the partners. It would not be right, we agree, to let any of
the partners remain in the partnership under such an atmosphere of animosity;
certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no different from its normal
concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on

costs. SO ORDERED.
G.R. No. L-59956 October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:ñé+.£ªwph!1

This is a petition for review on certiorari of the decision of the respondent Court of
Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent
Mariano E, Pecson.

As found by the respondent Court of Appeals, the undisputed facts indicate that:

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement
whereby both would contribute P15,000 each for the purpose of printing
95,000 posters (featuring the delegates to the 1971 Constitutional
Convention), with Moran actually supervising the work; that Pecson would
receive a commission of P l,000 a month starting on April 15, 1971 up to
December 15, 1971; that on December 15, 1971, a liquidation of the
accounts in the distribution and printing of the 95,000 posters would be
made, that Pecson gave Moran P10,000 for which the latter issued a
receipt; that only a few posters were printed; that on or about May 28,
1971, Moran executed in favor of Pecson a promissory note in the amount
of P20,000 payable in two equal installments (P10,000 payable on or
before June 15, 1971 and P10,000 payable on or before June 30, 1971),
the whole sum becoming due upon default in the payment of the first
installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for
the recovery of a sum of money and alleged in his complaint three (3) causes of action,
namely: (1) on the alleged partnership agreement, the return of his contribution of
P10,000.00, payment of his share in the profits that the partnership would have
earned, and, payment of unpaid commission; (2) on the alleged promissory note,
payment of the sum of P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.

After the trial, the Court of First Instance held that: têñ.£îhqwâ£

From the evidence presented it is clear in the mind of the court that by
virtue of the partnership agreement entered into by the parties-plaintiff and
defendant the plaintiff did contribute P10,000.00, and another sum of
P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the
expected 95,000 copies of the posters, the defendant was able to print
2,000 copies only authorized of which, however, were sold at P5.00 each.
Nothing more was done after this and it can be said that the venture did not
really get off the ground. On the other hand, the plaintiff failed to give his
full contribution of P15,000.00. Thus, each party is entitled to rescind the
contract which right is implied in reciprocal obligations under Article 1385 of
 the Civil Code whereunder 'rescission creates the obligation to return the
things which were the object of the contract ...

WHEREFORE, the court hereby renders judgment ordering defendant

Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of
P17,000.00, with interest at the legal rate from the filing of the complaint on
June 19, 1972, and the costs of the suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The
latter likewise rendered a decision against the petitioner. The dispositive portion of the
decision reads: têñ.£îhqwâ£

PREMISES CONSIDERED, the decision appealed from is hereby SET

ASIDE, and a new one is hereby rendered, ordering defendant-appellant
Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could
have accrued to Pecson under their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the
Veteran's Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed
(up to the time payment is made)

The petitioner contends that the respondent Court of Appeals decided questions of
substance in a way not in accord with law and with Supreme Court decisions when it
committed the following errors:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING

PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE
HIM.

II

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING

PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE
PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.

III

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING

PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN
A MAGAZINE VENTURE.
IV

ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY

AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET
PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT

GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private
respondent's share in the unrealized profits of the partnership. The petitioner contends
that the award is highly speculative. The petitioner maintains that the respondent court
did not take into account the great risks involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in
fact and law.

There is no dispute over the nature of the agreement between the petitioner and the
private respondent. It is a contract of partnership. The latter in his complaint alleged
that he was induced by the petitioner to enter into a partnership with him under the
following terms and conditions: têñ.£îhqwâ£

1. That the partnership will print colored posters of the delegates to the
Constitutional Convention;

2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00)
each;

3. That they will print Ninety Five Thousand (95,000) copies of the said
posters;

4. That plaintiff will receive a commission of One Thousand Pesos

(P1,000.00) a month starting April 15, 1971 up to December 15, 1971;

5. That upon the termination of the partnership on December 15, 1971, a

liquidation of the account pertaining to the distribution and printing of the
said 95,000 posters shall be made.

The petitioner on the other hand admitted in his answer the existence of the
partnership.

The rule is, when a partner who has undertaken to contribute a sum of money fails to
do so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages from the time he
should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon
(79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we
allowed a total of P200,000.00 compensatory damages in favor of the appellee
because the appellant therein was remiss in his obligations as a partner and as prime
contractor of the construction projects in question. This case was decided on a
particular set of facts. We awarded compensatory damages in the Uy case because
there was a finding that the constructing business is a profitable one and that the UP
construction company derived some profits from its contractors in the construction of
roads and bridges despite its deficient capital." Besides, there was evidence to show
that the partnership made some profits during the periods from July 2, 1956 to
December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits
on two government contracts worth P2,327,335.76 were not speculative. In the instant
case, there is no evidence whatsoever that the partnership between the petitioner and
the private respondent would have been a profitable venture. In fact, it was a failure
doomed from the start. There is therefore no basis for the award of speculative
damages in favor of the private respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy
contributed much more than what was expected of him. In this case, however, there
was mutual breach. Private respondent failed to give his entire contribution in the
amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed
to give any of the amount expected of him. He further failed to comply with the
agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.

Article 1797 of the Civil Code provides: têñ.£îhqwâ£

The losses and profits shall be distributed in conformity with the agreement.
If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion.

Being a contract of partnership, each partner must share in the profits and losses of
the venture. That is the essence of a partnership. And even with an assurance made
by one of the partners that they would earn a huge amount of profits, in the absence of
fraud, the other partner cannot claim a right to recover the highly speculative profits. It
is a rare business venture guaranteed to give 100% profits. In this case, on an
investment of P15,000.00, the respondent was supposed to earn a guaranteed
P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters
costing P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of
expected profits is obvious. We have to take various factors into account. The failure of
the Commission on Elections to proclaim all the 320 candidates of the Constitutional
Convention on time was a major factor. The petitioner undesirable his best business
judgment and felt that it would be a losing venture to go on with the printing of the
agreed 95,000 copies of the posters. Hidden risks in any business venture have to be
considered.

It does not follow however that the private respondent is not entitled to recover any
amount from the petitioner. The records show that the private respondent gave
P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The records
further show that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross
income of P10,000.00 and with no evidence on the cost of distribution, the net profits
amount to only P6,000.00. This net profit of P6,000.00 should be divided between the
petitioner and the private respondent. And since only P4,000.00 was undesirable by
the petitioner in printing the 2,000 copies, the remaining P6,000.00 should therefore be
returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00
as Pecson's supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private
respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15,
1971 for a total of eight (8) monthly commissions. The agreement does not state the
basis of the commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not have intended the
giving of a commission inspite of loss or failure of the venture. Since the venture was a
failure, the private respondent is not entitled to the P8,000.00 commission.

Anent the third assigned error, the petitioner maintains that the respondent Court of
Appeals erred in holding him liable to the private respondent in the sum of P7,000.00
as a supposed return of investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment

in the "Voice of the Veterans" magazine venture, the respondent court ruled that:
têñ.£îhqwâ£

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of

Pecson. Moran does not question the due execution of said note. Must
Moran therefore pay the amount of P20,000? The evidence indicates that
the P20,000 was assigned by Moran to cover the following: têñ.£îhqwâ£

(a) P 7,000 — the amount of the PNB check given

by Pecson to Moran representing Pecson's
investment in Moran's other project (the publication
and printing of the 'Voice of the Veterans');

(b) P10,000 — to cover the return of Pecson's

contribution in the project of the Posters;

(c) P3,000 — representing Pecson's commission for

three months (April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's

investment for the Veterans' project, for this project never left the ground)
...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and
cannot be reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided
they are borne out by the record or are based on substantial evidence (Alsua-Betts v.
Court of Appeals, 92 SCRA 332). However, this rule admits of certain exceptions.
Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734),
we held that this Court retains the power to review and rectify the findings of fact of the
Court of Appeals when (1) the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) when the inference made is manifestly mistaken absurd
and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; and (5) when the court, in making its findings,
went beyond the issues of the case and the same are contrary to the admissions of
both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent
himself shows that his investment in the "Voice of Veterans" project amounted to only
P3,000.00. The remaining P4,000.00 was the amount of profit that the private
respondent expected to receive.

The records show the following exhibits- têñ.£îhqwâ£

E — Xerox copy of PNB Manager's Check No. 234265 dated March 22,
1971 in favor of defendant. Defendant admitted the authenticity of this
check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29,
1972). This exhibit is being offered for the purpose of showing plaintiff's
capital investment in the printing of the "Voice of the Veterans" for which he
was promised a fixed profit of P8,000. This investment of P6,000.00 and
the promised profit of P8,000 are covered by defendant's promissory note
for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n.,
pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant
returned P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000 (capital)
and P4,000 (promised profit), defendant signed and executed the
promissory note for P7,000 marked Exhibit 3 for the defendant and Exhibit
M for plaintiff. Of this P7,000, defendant paid P4,000 representing full
return of the capital investment and P1,000 partial payment of the promised
profit. The P3,000 balance of the promised profit was made part
consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29,
1972). It is, therefore, being presented to show the consideration for the
P20,000 promissory note.

F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000
in favor of defendant. The authenticity of the check and his receipt of the
proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29,
1972). This P 7,000 is part consideration, and in cash, of the P20,000
promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to
show the consideration for the P20,000 note and the existence and validity
of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the
purpose of showing the subject matter of the other partnership agreement
and in which plaintiff invested the P6,000 (Exhibit E) which, together with
the promised profit of P8,000 made up for the consideration of the P14,000
promissory note (Exhibit 2; Exhibit P). As explained in connection with
Exhibit E. the P3,000 balance of the promised profit was later made part
consideration of the P20,000 promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also
defendant's Exhibit E. This document is being offered for the purpose of
further showing the transaction as explained in connection with Exhibits E
and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out
of his capital investment of P6,000 (Exh. E) in the P14,000 promissory note
 (Exh. 2; P). This is also defendant's Exhibit 4. This document is being
offered in support of plaintiff's explanation in connection with Exhibits E, L,
and M to show the transaction mentioned therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is

being offered for the purpose of showing the transaction as explained in
connection with Exhibits E, L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that:

Q During the pre-trial of this case, Mr. Pecson, the defendant

presented a promissory note in the amount of P14,000.00
which has been marked as Exhibit 2. Do you know this
promissory note?

A Yes, sir.

Q What is this promissory note, in connection with your

transaction with the defendant?

A This promissory note is for the printing of the "Voice of the

Veterans".

Q What is this "Voice of the Veterans", Mr. Pecson?

A It is a book.têñ.£îhqwâ£

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the

promissory note, Exhibit 2, represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran,

as evidenced by the Philippine National Bank Manager's check
and the P8,000.00 profit assured me by Mr. Moran which I will
derive from the printing of this "Voice of the Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by,

a Manager's check. I show you Exhibit E, is this the Manager's
check that mentioned?

A Yes, sir.

Q What happened to this promissory note of P14,000.00 which

you said represented P6,000.00 of your investment and
P8,000.00 promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which

represented one-half (1/2) of the P6,000.00 capital I gave to
him.
Q As a consequence of the return by Mr. Moran of one-half
(1/2) of the P6,000.00 capital you gave to him, what happened
to the promised profit of P8,000.00?

A It was reduced to one-half (1/2) which is P4,000.00.

Q Was there any document executed by Mr. Moran in

connection with the Balance of P3,000.00 of your capital
investment and the P4,000.00 promised profits?

A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount of P7,000.00

dated March 30, 1971 which for purposes of Identification I
request the same to be marked as Exhibit M. . .

Court têñ.£îhqwâ£

Mark it as Exhibit M.

Q (continuing) is this the promissory note which you said was

executed by Mr. Moran in connection with your transaction
regarding the printing of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr.

Moran, Mr. Pecson?

A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown

by the promissory note.

Q Was there a receipt issued by you covering this payment of

P4,000.00 in favor of Mr. Moran?

A Yes, sir.

(T.S.N., p. 23, Nov. 29, 1972).

Q You stated that Mr. Moran paid the amount of P4,000.00 on

account of the P7,000.00 covered by the promissory note,
Exhibit M. What does this P4,000.00 covered by Exhibit N
represent?

A This P4,000.00 represents the P3,000.00 which he has

returned of my P6,000.00 capital investment and the P1,000.00
represents partial payment of the P4,000.00 profit that was
promised to me by Mr. Moran.

Q And what happened to the balance of P3,000.00 under the

promissory note, Exhibit M?
 A The balance of P3,000.00 and the rest of the profit was
applied as part of the consideration of the promissory note of
P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground
because the project did take place. Only it failed. It was the private respondent himself
who presented a copy of the book entitled "Voice of the Veterans" in the lower court as
Exhibit "L". Therefore, it would be error to state that the project never took place and on
this basis decree the return of the private respondent's investment.

As already mentioned, there are risks in any business venture and the failure of the
undertaking cannot entirely be blamed on the managing partner alone, specially if the
latter exercised his best business judgment, which seems to be true in this case. In
view of the foregoing, there is no reason to pass upon the fourth and fifth assignments
of errors raised by the petitioner. We likewise find no valid basis for the grant of the
counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of

Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a new one is
rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano
Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the private
respondent's contribution to the partnership but which remained unused; and THREE
THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits gained
by the partnership in the sale of the two thousand (2,000) copies of the posters, with
interests at the legal rate on both amounts from the date the complaint was filed until
full payment is made.

SO ORDERED.

G.R. No. L-5236 January 10, 1910

PEDRO MARTINEZ, plaintiff-appellee,

vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.

ARELLANO, C.J.:

On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants
who, in a private document, acknowledged that they had received the same with the
agreement, as stated by them, "that we are to invest the amount in a store, the profits or
losses of which we are to divide with the former, in equal shares."

The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to
render him an accounting of the partnership as agreed to, or else to refund him the
P1,500 that he had given them for the said purpose. Ong Pong Co alone appeared to
answer the complaint; he admitted the fact of the agreement and the delivery to him and
to Ong Lay of the P1,500 for the purpose aforesaid, but he alleged that Ong Lay, who
was then deceased, was the one who had managed the business, and that nothing had
resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff
agreed.

The judge of the Court of First Instance of the city of Manila who tried the case ordered
Ong Pong Co to return to the plaintiff one-half of the said capital of P1,500 which,
together with Ong Lay, he had received from the plaintiff, to wit, P750, plus P90 as one-
half of the profits, calculated at the rate of 12 per cent per annum for the six months that
the store was supposed to have been open, both sums in Philippine currency, making a
total of P840, with legal interest thereon at the rate of 6 per cent per annum, from the
12th of June, 1901, when the business terminated and on which date he ought to have
returned the said amount to the plaintiff, until the full payment thereof with costs.

From this judgment Ong Pong Co appealed to this court, and assigned the following
errors:

1. For not having taken into consideration the fact that the reason for the closing
of the store was the ejectment from the premises occupied by it.

2. For not having considered the fact that there were losses.

3. For holding that there should have been profits.

4. For having applied article 1138 of the Civil Code.

5. and 6. For holding that the capital ought to have yielded profits, and that the
latter should be calculated 12 per cent per annum; and

7. The findings of the ejectment.

As to the first assignment of error, the fact that the store was closed by virtue of ejectment
proceedings is of no importance for the effects of the suit. The whole action is based
upon the fact that the defendants received certain capital from the plaintiff for the purpose
of organizing a company; they, according to the agreement, were to handle the said
money and invest it in a store which was the object of the association; they, in the
absence of a special agreement vesting in one sole person the management of the
business, were the actual administrators thereof; as such administrators they were the
agent of the company and incurred the liabilities peculiar to every agent, among which
is that of rendering account to the principal of their transactions, and paying him
everything they may have received by virtue of the mandatum. (Arts. 1695 and 1720,
Civil Code.) Neither of them has rendered such account nor proven the losses referred
to by Ong Pong Co; they are therefore obliged to refund the money that they received
for the purpose of establishing the said store — the object of the association. This was
the principal pronouncement of the judgment.

With regard to the second and third assignments of error, this court, like the court below,
finds no evidence that the entire capital or any part thereof was lost. It is no evidence of
such loss to aver, without proof, that the effects of the store were ejected. Even though
this were proven, it could not be inferred therefrom that the ejectment was due to the
fact that no rents were paid, and that the rent was not paid on account of the loss of the
capital belonging to the enterprise.
With regard to the possible profits, the finding of the court below are based on the
statements of the defendant Ong Pong Co, to the effect that "there were some profits,
but not large ones." This court, however, does not find that the amount thereof has been
proven, nor deem it possible to estimate them to be a certain sum, and for a given period
of time; hence, it can not admit the estimate, made in the judgment, of 12 per cent per
annum for the period of six months.

Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on
the part of a partner who acted as agent in receiving money for a given purpose, for
which he has rendered no accounting, such agent is responsible only for the losses
which, by a violation of the provisions of the law, he incurred. This being an obligation to
pay in cash, there are no other losses than the legal interest, which interest is not due
except from the time of the judicial demand, or, in the present case, from the filing of the
complaint. (Arts. 1108 and 1100, Civil Code.) We do not consider that article 1688 is
applicable in this case, in so far as it provides "that the partnership is liable to every
partner for the amounts he may have disbursed on account of the same and for the
proper interest," for the reason that no other money than that contributed as is involved.

As in the partnership there were two administrators or agents liable for the above-named
amount, article 1138 of the Civil Code has been invoked; this latter deals with debts of a
partnership where the obligation is not a joint one, as is likewise provided by article 1723
of said code with respect to the liability of two or more agents with respect to the return
of the money that they received from their principal. Therefore, the other errors assigned
have not been committed.

In view of the foregoing judgment appealed from is hereby affirmed, provided, however,
that the defendant Ong Pong Co shall only pay the plaintiff the sum of P750 with the
legal interest thereon at the rate of 6 per cent per annum from the time of the filing of the
complaint, and the costs, without special ruling as to the costs of this instance. So
ordered.

G.R. No. 5840 September 17, 1910

THE UNITED STATES, plaintiff-appellee,

vs.
EUSEBIO CLARIN, defendant-appellant.

ARELLANO, C.J.:

Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with
Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes, and, believing that
he could make some money in this business, the said Larin made an agreement with the
three men by which the profits were to be divided equally between him and them.

Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and
obtained P203 from the business, but did not comply with the terms of the contract by
delivering to Larin his half of the profits; neither did they render him any account of the
capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an information
only against Eusebio Clarin in which he accused him of appropriating to himself not only
the P172 but also the share of the profits that belonged to Larin, amounting to P15.50.

Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed
that the facts presented concerned the defendant and themselves together.

The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio
Clarin, to six months' arresto mayor, to suffer the accessory penalties, and to return to
Pedro Larin P172, besides P30.50 as his share of the profits, or to subsidiary
imprisonment in case of insolvency, and to pay the costs. The defendant appealed, and
in deciding his appeal we arrive at the following conclusions:

When two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves, a contract
is formed which is called partnership. (Art. 1665, Civil Code.)

When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and
Guzman, he invested his capital in the risks or benefits of the business of the purchase
and sale of mangoes, and, even though he had reserved the capital and conveyed only
the usufruct of his money, it would not devolve upon of his three partners to return his
capital to him, but upon the partnership of which he himself formed part, or if it were to
be done by one of the three specifically, it would be Tarug, who, according to the
evidence, was the person who received the money directly from Larin.

The P172 having been received by the partnership, the business commenced and profits
accrued, the action that lies with the partner who furnished the capital for the recovery
of his money is not a criminal action for estafa, but a civil one arising from the partnership
contract for a liquidation of the partnership and a levy on its assets if there should be
any.

No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who,
to the prejudice of another, shall appropriate or misapply any money, goods, or any kind
of personal property which they may have received as a deposit on commission for
administration or in any other character producing the obligation to deliver or return the
same," (as, for example, in commodatum, precarium, and other unilateral contracts
which require the return of the same thing received) does not include money received
for a partnership; otherwise the result would be that, if the partnership, instead of
obtaining profits, suffered losses, as it could not be held liable civilly for the share of the
capitalist partner who reserved the ownership of the money brought in by him, it would
have to answer to the charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it.

We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for
estafa is dismissed without prejudice to the institution of a civil action.

Torres, Johnson, Moreland and Trent, JJ., concur.

G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner,
vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION, respondents.
GANCAYCO, J.:
This petition for review on certiorari seeks the reversal of the decision of the Insurance
Commission in IC Case #367 1 dismissing the complaint 2 for recovery of the alleged
unpaid balance of the proceeds of the Fire Insurance Policies issued by herein
respondent insurance company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are as follows:
Complainants acquired from a certain Rolando Gonzales a parcel of land and a
building located at San Rafael Village, Davao City. Complainants assumed the
mortgage of the building in favor of S.S.S., which building was insured with respondent
S.S.S. Accredited Group of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the
amount of P100,000.00. To secure the payment of the loan, a mortgage was executed
over the land and the building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-
A"). On April 25, 1975, Arsenio Chua, representative of Thai Tong Chuache & Co.
insured the latter's interest with Travellers Multi-Indemnity Corporation for P100,000.00
(P70,000.00 for the building and P30,000.00 for the contents thereof) (Exhibit "A-a,"
contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500
(Exhibit "A"), covering the building for P50,000.00 with respondent Zenith Insurance
Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459 (Exhibit "B")
was procured from respondent Philippine British Assurance Company, covering the
same building for P50,000.00 and the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
Adjustment Standard Corporation submitted a report as follow
xxx xxx xxx
... Thus the apportioned share of each company is as follows:
Policy No..
Company Policy No.
Risk Company
Insures Corp. Risk
Pays Insures of Insurers
MIRO Assco. Co. Pays Building
Zenith FIC-15381 P25,000
Building F-84590 SSSAccre P8,805.47
P50,000 Phil.
P17,610.93 Household
F-02500 70,000 Inc. Totals
Insurance 24,655.31 FFF & F5 P195,000
50,000 dited Group P90,257.81
British 39,186.10
We are showing hereunder another apportionment of the loss which includes the
Travellers Multi-Indemnity policy for reference purposes.
Policy No.
Company
Risk British II-Building
Injures Group of
Pays Corp.
MIRO/ Building
Zenith P50,000 FFF & PE
P11,877.14 Assco. Co. 50,000
F-84590 I-Building 24,918.79 Insurers
Phil. 70,000 PVC-15181 Building
F-02500 16,628.00 SSS 25,000
Insurance Accredited 5,938.50
F-599 DV 30,000 Multi 16,628.00 Totals
Insurers 14,467.31 II-Building P295.000
I-Ref 70,000 P90,257.81
Based on the computation of the loss, including the Travellers Multi- Indemnity,
respondents, Zenith Insurance, Phil. British Assurance and S.S.S. Accredited Group of
Insurers, paid their corresponding shares of the loss. Complainants were paid the
following: P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith
Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6.
Amended Complaint). Demand was made from respondent Travellers Multi-Indemnity
for its share in the loss but the same was refused. Hence, complainants demanded
from the other three (3) respondents the balance of each share in the loss based on
the computation of the Adjustment Standards Report excluding Travellers Multi-
Indemnity in the amount of P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil.
British: and P2,866.90, SSS Accredited) but the same was refused, hence, this action.
In their answers, Philippine British Assurance and Zenith Insurance Corporation
admitted the material allegations in the complaint, but denied liability on the ground
that the claim of the complainants had already been waived, extinguished or paid. Both
companies set up counterclaim in the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers informed the
Commission in its letter of July 22, 1977 that the herein claim of complainants for the
balance had been paid in the amount of P 5,938.57 in full, based on the Adjustment
Standards Corporation Report of September 22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and
alleged as its special and affirmative defenses the following, to wit: that Fire Policy No.
599 DV, covering the furniture and building of complainants was secured by a certain
Arsenio Chua, mortgage creditor, for the purpose of protecting his mortgage credit
against the complainants; that the said policy was issued in the name of Azucena
Palomo, only to indicate that she owns the insured premises; that the policy contains
an endorsement in favor of Arsenio Chua as his mortgage interest may appear to
indicate that insured was Arsenio Chua and the complainants; that the premium due on
said fire policy was paid by Arsenio Chua; that respondent Travellers is not liable to
pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming
the proceeds of the fire Insurance Policy No. F-559 DV, issued by respondent
Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention, alleged that the
Intervenor is not entitled to indemnity under its Fire Insurance Policy for lack of
insurable interest before the loss of the insured premises and that the complainants,
spouses Pedro and Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed spouses Palomos'
complaint on the ground that the insurance policy subject of the complaint was taken
out by Tai Tong Chuache & Company, petitioner herein, for its own interest only as
mortgagee of the insured property and thus complainant as mortgagors of the insured
property have no right of action against herein respondent. It likewise dismissed
petitioner's complaint in intervention in the following words:
We move on the issue of liability of respondent Travellers Multi-Indemnity to the
Intervenor-mortgagee. The complainant testified that she was still indebted to
Intervenor in the amount of P100,000.00. Such allegation has not however, been
sufficiently proven by documentary evidence. The certification (Exhibit 'E-e') issued by
the Court of First Instance of Davao, Branch 11, indicate that the complainant was
Antonio Lopez Chua and not Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for
reconsideration but it was likewise denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission decided an
issue not raised in the pleadings of the parties in that it ruled that a certain Arsenio
Lopez Chua is the one entitled to the insurance proceeds and not Tai Tong Chuache &
Company.
This Court cannot fault petitioner for the above erroneous interpretation of the decision
appealed from considering the manner it was written. 5 As correctly pointed out by
respondent insurance commission in their comment, the decision did not pronounce
that it was Arsenio Lopez Chua who has insurable interest over the insured property.
Perusal of the decision reveals however that it readily absolved respondent insurance
company from liability on the basis of the commissioner's conclusion that at the time of
the occurrence of the peril insured against petitioner as mortgagee had no more
insurable interest over the insured property. It was based on the inference that the
credit secured by the mortgaged property was already paid by the Palomos before the
said property was gutted down by fire. The foregoing conclusion was arrived at on the
basis of the certification issued by the then Court of First Instance of Davao, Branch II
that in a certain civil action against the Palomos, Antonio Lopez Chua stands as the
complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known postulate that the
case of a party is constituted by his own affirmative allegations. Under Section 1, Rule
1316 each party must prove his own affirmative allegations by the amount of evidence
required by law which in civil cases as in the present case is preponderance of
evidence. The party, whether plaintiff or defendant, who asserts the affirmative of the
issue has the burden of presenting at the trial such amount of evidence as required by
law to obtain favorable judgment.7 Thus, petitioner who is claiming a right over the
insurance must prove its case. Likewise, respondent insurance company to avoid
liability under the policy by setting up an affirmative defense of lack of insurable
interest on the part of the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of the
insurance policy taken out by petitioner over the mortgaged property. Neither did it
deny that the said property was totally razed by fire within the period covered by the
insurance. Respondent, as mentioned earlier advanced an affirmative defense of lack
of insurable interest on the part of the petitioner that before the occurrence of the peril
insured against the Palomos had already paid their credit due the petitioner.
Respondent having admitted the material allegations in the complaint, has the burden
of proof to show that petitioner has no insurable interest over the insured property at
the time the contingency took place. Upon that point, there is a failure of proof.
Respondent, it will be noted, exerted no effort to present any evidence to substantiate
its claim, while petitioner did. For said respondent's failure, the decision must be
adverse to it.
However, as adverted to earlier, respondent Insurance Commission absolved
respondent insurance company from liability on the basis of the certification issued by
the then Court of First Instance of Davao, Branch II, that in a certain civil action against
the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong
Chuache. From said evidence respondent commission inferred that the credit extended
by herein petitioner to the Palomos secured by the insured property must have been
paid. Such is a glaring error which this Court cannot sanction. Respondent
Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the insurance
proceeds offered as evidence the contract of mortgage (Exh. 1) which has not been
cancelled nor released. It has been held in a long line of cases that when the creditor is
in possession of the document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was not assailed by
private respondent. Moreover, petitioner's claim that the loan extended to the Palomos
has not yet been paid was corroborated by Azucena Palomo who testified that they are
still indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed from the loan
granted to Azucena Palomo by petitioner the same should have been brought by Tai
Tong Chuache or by its representative in its own behalf. From the above premise
respondent concluded that the obligation secured by the insured property must have
been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10
respondent pointed out that the action must be brought in the name of the real party in
interest. We agree. However, it should be borne in mind that petitioner being a
partnership may sue and be sued in its name or by its duly authorized representative.
The fact that Arsenio Lopez Chua is the representative of petitioner is not questioned.
Petitioner's declaration that Arsenio Lopez Chua acts as the managing partner of the
partnership was corroborated by respondent insurance company. 11 Thus Chua as the
managing partner of the partnership may execute all acts of administration 12 including
the right to sue debtors of the partnership in case of their failure to pay their obligations
when it became due and demandable. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an
agent, it is understood that he acted for and in behalf of the firm.13 Public respondent's
allegation that the civil case flied by Arsenio Chua was in his capacity as personal
creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of herein petitioner
which policy was of legal force and effect at the time of the fire, it is bound by its terms
and conditions. Upon its failure to prove the allegation of lack of insurable interest on
the part of the petitioner, respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and
ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity
Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the
amount of P100,000.00. Costs against said private respondent.
SO ORDERED.
G.R. No. L-45624 April 25, 1939

GEORGE LITTON, petitioner-appellant,

vs.
HILL & CERON, ET AL., respondents-appellees.

CONCEPCION, J.:

This is a petition to review on certiorari the decision of the Court of Appeals in a case
originating from the Court of First Instance of Manila wherein the herein petitioner
George Litton was the plaintiff and the respondents Hill & Ceron, Robert Hill, Carlos
Ceron and Visayan Surety & Insurance Corporation were defendants.

The facts are as follows: On February 14, 1934, the plaintiff sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill & Ceron, a certain number of mining
claims, and by virtue of said transaction, the defendant Carlos Ceron delivered to the
plaintiff a document reading as follows:

Feb. 14, 1934

Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for
5,000, 5,000 and 7,000 shares respectively — total 17,000 shares of Big Wedge
Mining Company, which we have sold at P0.11 (eleven centavos) per share or
P1,870.00 less 1/2 per cent brokerage.

HILL & CERON

By: (Sgd.) CARLOS CERON

Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and
unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety &
Insurance Corporation, Litton filed a complaint in the Court of First Instance of Manila
against the said defendants for the recovery of the said balance. The court, after trial,
ordered Carlos Ceron personally to pay the amount claimed and absolved the
partnership Hill & Ceron, Robert Hill and the Visayan Surety & Insurance Corporation.
On appeal to the Court of Appeals, the latter affirmed the decision of the court on May
29, 1937, having reached the conclusion that Ceron did not intend to represent and did
not act for the firm Hill & Ceron in the transaction involved in this litigation.

Accepting, as we cannot but accept, the conclusion arrived at by the Court of Appeals
as to the question of fact just mentioned, namely, that Ceron individually entered into the
transaction with the plaintiff, but in view, however, of certain undisputed facts and of
certain regulations and provisions of the Code of Commerce, we reach the conclusion
that the transaction made by Ceron with the plaintiff should be understood in law as
effected by Hill & Ceron and binding upon it.

In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he
and Ceron, during the partnership, had the same power to buy and sell; that in said
partnership Hill as well as Ceron made the transaction as partners in equal parts; that
on the date of the transaction, February 14, 1934, the partnership between Hill and
Ceron was in existence. After this date, or on February 19th, Hill & Ceron sold shares of
the Big Wedge; and when the transaction was entered into with Litton, it was neither
published in the newspapers nor stated in the commercial registry that the partnership
Hill & Ceron had been dissolved.

Hill testified that a few days before February 14th he had a conversation with the plaintiff
in the course of which he advised the latter not to deliver shares for sale or on
commission to Ceron because the partnership was about to be dissolved; but what
importance can be attached to said advice if the partnership was not in fact dissolved on
February 14th, the date when the transaction with Ceron took place?

Under article 226 of the Code of Commerce, the dissolution of a commercial association
shall not cause any prejudice to third parties until it has been recorded in the commercial
registry. (See also Cardell vs. Mañeru, 14 Phil., 368.) The Supreme Court of Spain held
that the dissolution of a partnership by the will of the partners which is not registered in
the commercial registry, does not prejudice third persons. (Opinion of March 23, 1885.)

Aside from the aforecited legal provisions, the order of the Bureau of Commerce of
December 7, 1933, prohibits brokers from buying and selling shares on their own
account. Said order reads:

The stock and/or bond broker is, therefore, merely an agent or an intermediary,
and as such, shall not be allowed. . . .

(c) To buy or to sell shares of stock or bonds on his own account for purposes of
speculation and/or for manipulating the market, irrespective of whether the
purchase or sale is made from or to a private individual, broker or brokerage firm.

In its decision the Court of Appeals states:

But there is a stronger objection to the plaintiff's attempt to make the firm
responsible to him. According to the articles of copartnership of 'Hill & Ceron,'
filed in the Bureau of Commerce.
 Sixth. That the management of the business affairs of the copartnership shall be
entrusted to both copartners who shall jointly administer the business affairs,
transactions and activities of the copartnership, shall jointly open a current
account or any other kind of account in any bank or banks, shall jointly sign all
checks for the withdrawal of funds and shall jointly or singly sign, in the latter
case, with the consent of the other partner. . . .

Under this stipulation, a written contract of the firm can only be signed by one of
the partners if the other partner consented. Without the consent of one partner,
the other cannot bind the firm by a written contract. Now, assuming for the
moment that Ceron attempted to represent the firm in this contract with the
plaintiff (the plaintiff conceded that the firm name was not mentioned at that
time), the latter has failed to prove that Hill had consented to such contract.

It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above
quoted that the management of the business of the partnership has been entrusted to
both partners thereof, but we dissent from the view of the Court of Appeals that for one
of the partners to bind the partnership the consent of the other is necessary. Third
persons, like the plaintiff, are not bound in entering into a contract with any of the two
partners, to ascertain whether or not this partner with whom the transaction is made has
the consent of the other partner. The public need not make inquires as to the agreements
had between the partners. Its knowledge, is enough that it is contracting with the
partnership which is represented by one of the managing partners.

There is a general presumption that each individual partner is an authorized

agent for the firm and that he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle, 112 Pac., 617.)

The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in its
behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U. S. [Law.
ed.], 391.)

The second paragraph of the articles of partnership of Hill & Ceron reads in part:

Second: That the purpose or object for which this copartnership is organized is to
engage in the business of brokerage in general, such as stock and bond brokers,
real brokers, investment security brokers, shipping brokers, and other activities
pertaining to the business of brokers in general.

The kind of business in which the partnership Hill & Ceron is to engage being thus
determined, none of the two partners, under article 130 of the Code of Commerce, may
legally engage in the business of brokerage in general as stock brokers, security brokers
and other activities pertaining to the business of the partnership. Ceron, therefore, could
not have entered into the contract of sale of shares with Litton as a private individual, but
as a managing partner of Hill & Ceron.

The respondent argues in its brief that even admitting that one of the partners could not,
in his individual capacity, engage in a transaction similar to that in which the partnership
is engaged without binding the latter, nevertheless there is no law which prohibits a
partner in the stock brokerage business for engaging in other transactions different from
those of the partnership, as it happens in the present case, because the transaction
made by Ceron is a mere personal loan, and this argument, so it is said, is corroborated
by the Court of Appeals. We do not find this alleged corroboration because the only
finding of fact made by the Court of Appeals is to the effect that the transaction made by
Ceron with the plaintiff was in his individual capacity.

The appealed decision is reversed and the defendants are ordered to pay to the plaintiff,
jointly and severally, the sum of P720, with legal interest, from the date of the filing of
the complaint, minus the commission of one-half per cent (½%) from the original price
of P1,870, with the costs to the respondents. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

RESOLUTION

July 13, 1939

CONCEPCION, J.:

A motion has been presented in this case by Robert Hill, one of the defendants
sentenced in our decision to pay to the plaintiff the amount claimed in his complaint. It is
asked that we reconsider our decision, the said defendant insisting that the appellant
had not established that Carlos Ceron, another of the defendants, had the consent of his
copartner, the movant, to enter with the appellant into the contract whose breach gave
rise to the complaint. It is argued that, it being stipulated in the articles of partnership that
Hill and Ceron, only partners of the firm Hill & Ceron, would, as managers, have the
management of the business of the partnership, and that either may contract and sign
for the partnership with the consent of the other; the parties of partnership having been,
so it is said, recorded in the commercial registry, the appellant could not ignore the fact
that the consent of the movant was necessary for the validity of the contract which he
had with the other partner and defendant, Ceron, and there being no evidence that said
consent had been obtained, the complaint to compel compliance with the said contract
had to be, as it must be in fact, a procedural failure.
Although this question has already been considered and settled in our decision, we
nevertheless take cognizance of the motion in order to enlarge upon our views on the
matter.

The stipulation in the articles of partnership that any of the two managing partners may
contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates an obligation between the two partners, which consists in asking
the other's consent before contracting for the partnership. This obligation of course is
not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other. A third person may and has
a right to presume that the partner with whom he contracts has, in the ordinary and
natural course of business, the consent of his copartner; for otherwise he would not enter
into the contract. The third person would naturally not presume that the partner with
whom he enters into the transaction is violating the articles of partnership but, on the
contrary, is acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No. 18, section
334, Code of Civil Procedure), and that the law has been obeyed (No. 31, section 334).
This last presumption is equally applicable to contracts which have the force of law
between the parties.

Wherefore, unless the contrary is shown, namely, that one of the partners did not
consent to his copartner entering into a contract with a third person, and that the latter
with knowledge thereof entered into said contract, the aforesaid presumption with all its
force and legal effects should be taken into account.

There is nothing in the case at bar which destroys this presumption; the only thing
appearing in he findings of fact of the Court of Appeals is that the plaintiff "has failed to
prove that Hill had consented to such contract". According to this, it seems that the Court
of Appeals is of the opinion that the two partners should give their consent to the contract
and that the plaintiff should prove it. The clause of the articles of partnership should not
be thus understood, for it means that one of the two partners should have the consent
of the other to contract for the partnership, which is different; because it is possible that
one of the partners may not see any prospect in a transaction, but he may nevertheless
consent to the realization thereof by his copartner in reliance upon his skill and ability or
otherwise. And here we have to hold once again that it is not the plaintiff who, under the
articles of partnership, should obtain and prove the consent of Hill, but the latter's
partner, Ceron, should he file a complaint against the partnership for compliance with
the contract; but in the present case, it is a third person, the plaintiff, who asks for it.
While the said presumption stands, the plaintiff has nothing to prove.

Passing now to another aspect of the case, had Ceron in any way stated to the appellant
at the time of the execution of the contract, or if it could be inferred by his conduct, that
he had the consent of Hill, and should it turn out later that he did not have such consent,
this alone would not annul the contract judging from the provisions of article 130 of the
Code of Commerce reading as follows:

No new obligation shall be contracted against the will of one of the managing
partners, should he have expressly stated it; but if, however, it should be
contracted it shall not be annulled for this reason, and shall have its effects
without prejudice to the liability of the partner or partners who contracted it to
reimburse the firm for any loss occasioned by reason thereof. (Emphasis
supplied.)

Under the aforequoted provisions, when, not only without the consent but against the
will of any of the managing partners, a contract is entered into with a third person who
acts in good faith, and the transaction is of the kind of business in which the partnership
is engaged, as in the present case, said contract shall not be annulled, without prejudice
to the liability of the guilty partner.

The reason or purpose behind these legal provisions is no other than to protect a third
person who contracts with one of the managing partners of the partnership, thus avoiding
fraud and deceit to which he may easily fall a victim without this protection which the
Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by holding that it is the

obligation of the third person to inquire whether the managing copartner of the one with
whom he contracts has given his consent to said contract, which is practically casting
upon him the obligation to get such consent, this interpretation would, in similar cases,
operate to hinder effectively the transactions, a thing not desirable and contrary to the
nature of business which requires promptness and dispatch one the basis of good faith
and honesty which are always presumed.

In view of the foregoing, and sustaining the other views expressed in the decision, the
motion is denied. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B.

NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

MAKALINTAL, J.:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista &
Co." On June 7, 1955 the Articles of Co-partnership was amended as to include herein
respondent, Estrella Abad Santos, as industrial partner, with herein petitioners
Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro,
the original capitalist partners, remaining in that capacity, with a contribution of
P17,500 each. The amended Articles provided, inter alia, that "the contribution of
Estrella Abad Santos consists of her industry being an industrial partner", and that the
profits and losses "shall be divided and distributed among the partners ... in the
proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P.
Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and
30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in
the Court of First Instance of Manila, alleging that the partnership, which was also
made a party-defendant, had been paying dividends to the partners except to her; and
that notwithstanding her demands the defendants had refused and continued to refuse
and let her examine the partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared by the partnership.
She therefore prayed that the defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share in the partnership profits
after such accounting, plus attorney's fees and costs.

The defendants, in their answer, denied ever having declared dividends or distributed
profits of the partnership; denied likewise that the plaintiff ever demanded that she be
allowed to examine the partnership books; and byway of affirmative defense alleged
that the amended Articles of Co-partnership did not express the true agreement of the
parties, which was that the plaintiff was not an industrial partner; that she did not in fact
contribute industry to the partnership; and that her share of 30% was to be based on
the profits which might be realized by the partnership only until full payment of the loan
which it had obtained in December, 1955 from the Rehabilitation Finance Corporation
in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker
and mortgaged her property as security.
The parties are in agreement that the main issue in this case is "whether the plaintiff-
appellee (respondent here) is an industrial partner as claimed by her or merely a profit
sharer entitled to 30% of the net profits that may be realized by the partnership from
June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall
be fully paid, as claimed by appellants (herein petitioners)." On that issue the Court of
First Instance found for the plaintiff and rendered judgement "declaring her an
industrial partner of Evangelista & Co.; ordering the defendants to render an
accounting of the business operations of the (said) partnership ... from June 7, 1955; to
pay the plaintiff such amounts as may be due as her share in the partnership profits
and/or dividends after such an accounting has been properly made; to pay plaintiff
attorney's fees in the sum of P2,000.00 and the costs of this suit."

The defendants appealed to the Court of Appeals, which thereafter affirmed judgments
of the court a quo.

In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an

industrial partner of Evangelista & Co., notwithstanding the admitted fact
that since 1954 and until after promulgation of the decision of the appellate
court the said respondent was one of the judges of the City Court of Manila,
and despite its findings that respondent had been paid for services
allegedly contributed by her to the partnership. In this connection the Court
of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership,"

Exhibit "A" is conclusive evidence that respondent was in fact
made an industrial partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony

quoted in the decision proves that said respondent did not bind
herself to contribute her industry, and she could not, and in fact
did not, because she was one of the judges of the City Court of
Manila since 1954.

(C) In finding that respondent did not in fact contribute her

industry, despite the appellate court's own finding that she has
been paid for the services allegedly rendered by her, as well as
for the loans of money made by her to the partnership.

II. The lower court erred in not finding that in any event the respondent was
lawfully excluded from, and deprived of, her alleged share, interests and
 participation, as an alleged industrial partner, in the partnership Evangelista
& Co., and its profits or net income.

III. The Court of Appeals erred in affirming in toto the decision of the trial
court whereby respondent was declared an industrial partner of the
petitioner, and petitioners were ordered to render an accounting of the
business operation of the partnership from June 7, 1955, and to pay the
respondent her alleged share in the net profits of the partnership plus the
sum of P2,000.00 as attorney's fees and the costs of the suit, instead of
dismissing respondent's complaint, with costs, against the respondent.

It is quite obvious that the questions raised in the first assigned errors refer to the facts
as found by the Court of Appeals. The evidence presented by the parties as the trial in
support of their respective positions on the issue of whether or not the respondent was
an industrial partner was thoroughly analyzed by the Court of Appeals on its decision,
to the extent of reproducing verbatim therein the lengthy testimony of the witnesses.

It is not the function of the Supreme Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to reviewing errors of law that might have been
commited by the lower court. It should be observed, in this regard, that the Court of
Appeals did not hold that the Articles of Co-partnership, identified in the record as
Exhibit "A", was conclusive evidence that the respondent was an industrial partner of
the said company, but considered it together with other factors, consisting of both
testimonial and documentary evidences, in arriving at the factual conclusion expressed
in the decision.

The findings of the Court of Appeals on the various points raised in the first assignment
of error are hereunder reproduced if only to demonstrate that the same were made
after a through analysis of then evidence, and hence are beyond this Court's power of
review.

The aforequoted findings of the lower Court are assailed under Appellants'
first assigned error, wherein it is pointed out that "Appellee's documentary
evidence does not conclusively prove that appellee was in fact admitted by
appellants as industrial partner of Evangelista & Co." and that "The
grounds relied upon by the lower Court are untenable" (Pages 21 and 26,
Appellant's Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants'

complaint being that "In finding that the appellee is an industrial partner of
appellant Evangelista & Co., herein referred to as the partnership — the
lower court relied mainly on the appellee's documentary evidence, entirely
disregarding facts and circumstances established by appellants" evidence
which contradict the said finding' (Page 21, Appellants' Brief). The lower
court could not have done otherwise but rely on the exhibits just mentioned,
first, because appellants have admitted their genuineness and due
execution, hence they were admitted without objection by the lower court
when appellee rested her case and, secondly the said exhibits indubitably
show the appellee is an industrial partner of appellant company. Appellants
are virtually estopped from attempting to detract from the probative force of
the said exhibits because they all bear the imprint of their knowledge and
consent, and there is no credible showing that they ever protested against
or opposed their contents prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant Evangelista, Jr., would have
us believe — as against the cumulative force of appellee's aforesaid
documentary evidence — is the appellee's Exhibit "A", as confirmed and
corroborated by the other exhibits already mentioned, does not express the
true intent and agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit sharer entitled to
30% of the net profits that may be realized between the partners from June
7, 1955, until the mortgage loan of P30,000.00 to be obtained from the
RFC shall have been fully paid. This version, however, is discredited not
only by the aforesaid documentary evidence brought forward by the
appellee, but also by the fact that from June 7, 1955 up to the filing of their
answer to the complaint on February 8, 1964 — or a period of over eight
(8) years — appellants did nothing to correct the alleged false agreement of
the parties contained in Exhibit "A". It is thus reasonable to suppose that,
had appellee not filed the present action, appellants would not have
advanced this obvious afterthought that Exhibit "A" does not express the
true intent and agreement of the parties thereto.

At pages 32-33 of appellants' brief, they also make much of the argument
that 'there is an overriding fact which proves that the parties to the
Amended Articles of Partnership, Exhibit "A", did not contemplate to make
the appellee Estrella Abad Santos, an industrial partner of Evangelista &
Co. It is an admitted fact that since before the execution of the amended
articles of partnership, Exhibit "A", the appellee Estrella Abad Santos has
been, and up to the present time still is, one of the judges of the City Court
of Manila, devoting all her time to the performance of the duties of her
public office. This fact proves beyond peradventure that it was never
contemplated between the parties, for she could not lawfully contribute her
full time and industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point,
quoting it in the decision, and then concluded as follows:

One cannot read appellee's testimony just quoted without gaining the very
definite impression that, even as she was and still is a Judge of the City
Court of Manila, she has rendered services for appellants without which
they would not have had the wherewithal to operate the business for which
appellant company was organized. Article 1767 of the New Civil Code
which provides that "By contract of partnership two or more persons bind
themselves, to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves, 'does not
specify the kind of industry that a partner may thus contribute, hence the
said services may legitimately be considered as appellee's contribution to
the common fund. Another article of the same Code relied upon appellants
reads:

'ART. 1789. An industrial partner cannot engage in business for

himself, unless the partnership expressly permits him to do so;
and if he should do so, the capitalist partners may either
exclude him from the firm or avail themselves of the benefits
which he may have obtained in violation of this provision, with a
right to damages in either case.'

It is not disputed that the provision against the industrial partner engaging
in business for himself seeks to prevent any conflict of interest between the
industrial partner and the partnership, and to insure faithful compliance by
said partner with this prestation. There is no pretense, however, even on
the part of the appellee is engaged in any business antagonistic to that of
appellant company, since being a Judge of one of the branches of the City
Court of Manila can hardly be characterized as a business. That appellee
has faithfully complied with her prestation with respect to appellants is
clearly shown by the fact that it was only after filing of the complaint in this
case and the answer thereto appellants exercised their right of exclusion
under the codal art just mentioned by alleging in their Supplemental
Answer dated June 29, 1964 — or after around nine (9) years from June 7,
1955 — subsequent to the filing of defendants' answer to the complaint,
defendants reached an agreement whereby the herein plaintiff been
excluded from, and deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in the defendant partnership
and/or in its net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she has been and still is
a judge of the City Court (formerly Municipal Court) of the City of Manila,
 devoting her time to performance of her duties as such judge and enjoying
the privilege and emoluments appertaining to the said office, aside from
teaching in law school in Manila, without the express consent of the herein
defendants' (Record On Appeal, pp. 24-25). Having always knows as a
appellee as a City judge even before she joined appellant company on
June 7, 1955 as an industrial partner, why did it take appellants many
yearn before excluding her from said company as aforequoted allegations?
And how can they reconcile such exclusive with their main theory that
appellee has never been such a partner because "The real agreement
evidenced by Exhibit "A" was to grant the appellee a share of 30% of the
net profits which the appellant partnership may realize from June 7, 1955,
until the mortgage of P30,000.00 obtained from the Rehabilitation Finance
Corporal shall have been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that
appellee is an industrial partner of appellant company, with the right to
demand for a formal accounting and to receive her share in the net profit
that may result from such an accounting, which right appellants take
exception under their second assigned error. Our said holding is based on
the following article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal account
as to partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession

of its property by his co-partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate
jurisdiction to reviewing only errors of law, accepting as conclusive the factual findings
of the lower court upon its own assessment of the evidence.

The judgment appealed from is affirmed, with costs.

TUASON & SAN PEDRO, plaintiffs-appellees,
vs.
GAVINA ZAMORA & SONS, defendants-appellants.
MAPA, J.:
Don Mariano Tuason and Don Manuel Garcia San Pedro had entered into a mercantile
partnership en comandita with Luis Vives, under the firm name of “Luis Vives & Co.” By
the death of Luis Vives the partnership was dissolved, and was then reorganized under
the name of “Tuason & San Pedro” on the 31st of December, 1898, composed solely
of the surviving partners. This partnership assumed the business of the former
partnership as wood sawyers and building contractors, the liability of the firm being
made retroactive to the 11th of July, 1897. In February, 1898, Don Mariano Tuason
entered into the contract with Don Juan Feliciano upon which this case turns, the
contract being for the construction of a house. He did not mention in the contract that it
was made on behalf of the firm of Tuason & San Pedro. In the protest, dated the 23d
day of June, 1898, it is seen that Don Manuel San Pedro makes this protest with
respect to the delivery of the house, and makes it on behalf of the firm of “Tuason &
San Pedro,” the manager of which, Don Mariano Tuason, says Don Manuel San Pedro
had contracted for the building. On the 25th of August, 1900, Tuason & San Pedro
brought this action. Objection having been made to the right of the plaintiff partnership
to sue, the question must be determined whether a partnership can maintain an action
in its own behalf upon a contract entered into by one of the partners in his own name,
thus binding the third person who contracted with this partner.
The purpose of the complaint is the recovery of the price of the house built. The entire
question is reduced to these terms: Should this payment be made to the partnership?
The following facts had been made to appear of record before the exception was
taken: (1) That the partnership claimed to be the owner of this credit by its protest
against default. (2) That it was in the possession of the document evidentiary of the
credit and others connected with it, such as the notarial record of demand for payment
made by the partner Tuason, and the record made of the offer to deliver the keys of the
house, prepared at the instance of Tuason. (3) That the attorney appearing for the
partnership held a power of attorney from the partnership, executed by Tuason as
managing partner. There can not, therefore, by any duality, any incompatibility, or
repetition of action. Everything which Tuason might have done is being done by the
partnership, and after what the partnership has done Tuason can do nothing. The
action being a solidary one, therefore, the result is the same whether it has been
brought by Tuason & San Pedro or by Tuason alone. “Payment should be made to the
person in whose favor the obligation is constituted, or to some other person authorized
to receive it in his name.” (Art. 1162 of the Civil Code.)
“The first of these cases,” says Manresa, “the most natural and simple, refers not only
to the person who may have been the creditor at the time the obligation was created
but rather to the person who is the creditor at the time payment is due… That the
principle laid down by the code has this wide meaning is demonstrated by the fact that
it has no rules, as have other codes (for instance, the Argentine code) which expressly
authorized heirs, assignees, and subrogated creditors to demand payment, and the
right of these persons being unquestionable they must be regarded as included in the
first part of article 1162, because, although the obligation was not created in their favor,
it has subsequently resulted that its constitutions is to their benefit.” (Manresa,
Commentaries on the Civil Code, vol. 8, p. 252.)
When process was served upon the defendant to answer the complaint, it could be
seen that the plaintiff was not an heir, an assignee, or a subrogated creditor, physically
distinct from the person who made the contract, but this very same person, also
bringing with him into the case the responsibility of a general partnership, which, far
from declining to entertain the exceptions, set-offs, and counter claims which might be
available against the original creditor, undertakes to defend against them as the
original, actual, and sole creditor.
Hence it is that the defense of the defendant is by no means limited, nor will the effects
of the payment be frustrated. Furthermore, it is evident that although Tuason may have
operated in his own name, it certainly was not with his own private funds. Therefore it
was that this contract was communicated to the partnership which became responsible
therefor. (Art. 134, Code of Commerce.)
In view of the understanding and agreement between Tuason and the partnership,
shown by the facts stated, the responsibility of the partner Tuason being included in
the responsibility of Tuason & San Pedro, the liability of the firm is not less than the
personal liability of the partner, as the partnership was a general one. And the action
brought by the firm being simply the action in favor of the partner assumed by the firm
as the result of the assumption of the business and the filing of the complaint, the
exception, practically speaking, is entirely unnecessary, although, from a theoretical
point of view, it might perhaps be supported. We therefore decide that the action
brought by the partnership will lie, and the payment which may be made to the
partnership upon the circumstances stated will be perfectly legal.
The legal grounds on which paragraph 8 of the conclusions of law of the appealed
judgment was based, are hereby modified to conform to the preceding opinion, and so
modified we accept the findings of fact and the conclusions of law of the court below,
with the following amendment: That part of the first conclusion of law which reads, “the
owner of the property, Don Juan Feliciano, and, by reason of his death, his heirs, now
defendants, are bound to pay the entire price agreed upon with the contractor, as the
work was terminated and delivered,” being amended to read as follows: “The owner,
Don Juan Feliciano, and, by his death, his heirs, now defendants, are bound to pay all
the price agreed upon to the contractor, because the house burned after the work
terminated, and after the defendants had become in default with respect to their
obligation to receive it,” for although it is evident, as stated in the seventh conclusion of
law, that the contractor has done everything incumbent upon him for the delivery of the
house, it is none the less true, as a matter of fact, that no such delivery took place.
We therefore affirm the judgment below, with costs in this instance to the appellant. So
ordered.

G.R. No. 30286 September 12, 1929

M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendants-appellees.

STATEMENT

Plaintiff alleges that about December 23, 1926, he and the defendants formed a
partnership for the operation of a fish business and similar commercial transactions,
which by mutual contest was called "Malangpaya Fish Co," with a capital of P35,000, of
which plaintiff paid P25,000, the defendant Martin P5,000, P2,500, and Golucke P2,500.
That as such partnership, they agreed to share in the profits and losses of the business
in proportion to the amount of capital which each contributed. That the plaintiff was
named the general manager to take charge of the business, with full power to do and
perform all acts necessary to carry out of the purposes of the partnership. That there
was no agreement as to the duration of the partnership. That plaintiff wants to dissolve
it, but that the defendants refused to do so. A statement marked Exhibit A, which purports
to be a cash book, is made a part of the complaint. That the partnership purchased and
now owns a lighter called Lapu-Lapu, and a motorship called Barracuda, and other
properties. That the lighter and the motorship are in the possession of the defendants
who are making use of them, to the damage and prejudice of the plaintiff, for any damage
which plaintiff may sustain. That it is for the best interest of the parties to have a receiver
appointed pending this litigation, to take possession of the properties, and he prays that
the Philippine Trust Company be appointed receiver, and for judgment dissolving the
partnership, with costs.

Each of the defendants filed a separate answer, but the same nature, in which they admit
that about December 10, 1926, the plaintiff and the defendants formed a partnership for
the purpose of the equipment of the Manila Fish Co., Inc., and the conduct of a fish
business. That the terms of the partnership were never evidenced by a truth and in fact,
the partnership was formed under a written plan, of which each member received a copy
and to which all agreed. That by its terms the amount of the capital was P45,000, of
which the plaintiff agreed to contribute P35,000. That P20,000 of the capital was to be
used for the purchase of the equipment of the Manila Fish Co., Inc. and the balance
placed to the checking account o the new company.

It is then alleged that "the new owners agree to duties as follows:

Capt. Maddy will have charger of the Barracuda and the navigating of the same.
Salary P300 per month.

Mr. Martin will have charge of the southern station, cold stores, commissary and
procuring fish. Salary P300 per month.

Mr. Teague will have charge of selling fish in Manila and purchasing supplies. No
salary until business is on paying basis, then the same as Maddy or Martin.

The principal office shall be in Manila, each party doing any business shall keep
books showing plainly all transactions, the books shall be available at all time for
inspections of any member of the partnership.

If Mr. Martin or Mr. Maddy wishes at some future time to repurchase a larger
share in the business Teague agrees to sell part of his shares to each on the
basis double the amount originally invested by each or ten thousand to Martin
and five thousand to Maddy.

This offer will expire after two years.

That no charge was ever made in the terms of said agreement of copartnership
as set forth above except that it was later agreed among the partners that the
business of the partnership should be conducted under the trade name
"Malangpaya Fish Company."

That as shown by the foregoing quoted agreement the agreed capital of the
copartnership was P45,000 and not P35,000 as stated in the third paragraph of
plaintiff's amended complaint, and the plaintiff herein, M. Teague, bound himself
and agreed to contribute to the said copartnership the sum of P35,000 and not
the sum of P25,000 as stated in the third paragraph of his said amended
complaint.
Defendant Martin specificaly denies the "plaintiff was named general manager of the
partnership," and alleged "that all the duties and powers of the said plaintiff were
specifically set forth in the above quoted written agreement and that no further or
additional powers were ever given the said plaintiff." But he admits the purchase of the
motorship Barracuda, by the partnership. He denies that Exhibit A is a true or correct
statement of the cash received and paid out by or on behalf of the partnership, or that
the partnership over purchased or that it now owns the lighter Lapu-Lapu, "And/ or any
other properties" as mentioned in said ninth paragraph, except such motorship and a
smoke in the house," or that the defendants are making use of any of the properties of
the partnership, to the damage and prejudice of the plaintiff, or that they do not have any
visible means to answer for any damages, and alleges that at the time of the filing of the
complaint, partnership in cold storage, of the value of P6,000, for which he has never
accounted on the books of the partnership or mentioned in the complaint, and defendant
prays that plaintiff's complaint be dismissed, and that he be ordered and required to
render an accounting , and to pay to partnership the balance of his unpaid subscription
amounting to P10,000.

In his answer the defendant Maddy claimed and asserted that there is due and owing
him from the plaintiff P1,385.53, with legal interest, and in his amended answer, the
defendant Martin prays for judgment for P615.49.

To all which the plaintiff made a general and specific denial.

Upon such issues the lower court on April 30, 1928, rendered the following judgment:

In view of the foregoing considerations, the court decrees:

That the partnership, existing among the parties in this suit, is hereby declared
dissolved; that all the existing properties of the said partnership are ordered to be
sold at public auction; and that all the proceeds and other unexpended funds of
the partnership be used, first, to pay he P529.48 tax to the Government of the
Philippine Islands; second, to pay debts owing to third persons; third, to
reimburse the partners for their advances and salaries due; and lastly, to return
to the partners the amounts they contributed to the capital of the association and
any other remaining such to be distributed proportionately among them as profits:

That the plaintiff immediately render a true and proper account of all the money
due to and received by him for the partnership.

That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and adding
machine belong exclusively to the plaintiff, M. Teague, but the said plaintiff must
return to and reimburse the partnership the sum of P14,032.26 taken from its
funds for the purchase and equipment of the said barge Lapu-Lapu; and also to
 return the sum of P1,230 and P228 used for buying the Ford truck and adding
machine, respectively:

That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and the sum of
P615.49 be paid to defendant, H. Martin, for their advances and their unpaid
salaries, with legal interest from October 27, 1927, until paid; that the plaintiff pay
the costs of this action.

So ordered.

May 16, 1928, plaintiff filed a motion praying for an order "directing the court's
stenographic notes taken by them of the evidence presented in the present case, as
soon as possible." This motion was denied on May 19th, and on May 16th, the court
denied the plaintiff's motion for reconsideration. To all of which exceptions were duly
taken.

June 7, 1928, plaintiff filed a petition praying, for the reasons therein stated, that the
decision of the court in the case be set aside, and that the parties be permitted to again
present their testimony and to have the case decided upon its merits. To which
objections were duly made, and on June 28, 1928, the court denied plaintiff's motion for
a new trial. To which exceptions were duly taken, and on July 10, 1928, the plaintiff filed
a motion in which he prayed that the period for the appeal interposed by the plaintiff be
suspended, and that the order of June 28, 1928, be set aside, "and that another be
entered ordering the re-taking of the evidence in this case." To which objections were
also filed and later overruled, from all of which the plaintiff appealed and assigns the
following errors:

I. The trial court erred in not having confined itself, in the determination of this
case, to the question as to whether or not it is proper to dissolve the partnership
and to liquidate its assets, for all other issues raised by appellees are incidental
with the process of liquidation provided for by law.

II. The trial court erred in not resolving the primary and most important question
at issue in his case, namely, whether or not the appellant M. Teague was the
manager of the unregistered partnership Malangpaya Fish Company.

III. The trial court erred in holding that the appellant had no authority to buy the
Lapu-Lapu, the Ford truck and the adding machine without the consent of his
copartners, for in accordance with article 131 of the Code of Commerce the
managing partner of a partnership can make purchases for the partnership
without the knowledge and/or consent of his copartners.
 IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck and the
adding machine purchased by appellant, as manager of the Malangpaya Fish
Company, for and with funds of the partnership, do not form part of the assets of
the partnership.

V. The trial court erred in requiring the appellant to pay to the partnership the
sum of P14,032.26, purchase price, cost of repairs and equipment of the barge
Lapu-Lapu; P1,230 purchase price of the adding machine, for these properties
were purchased for and they form part of the assets of the partnership.

VI. The trial court erred in disapproving appellant's claim for salary and expenses
incurred by him for and in connection with the partnership's business.

VII. The trial court erred in approving the claims of appellees J.T. Maddy and H.
Martin and in requiring the appellant to pay them the sum of P1,512.03 and
P615.49 respectively.

VIII. The trial court erred in not taking cognizance of appellant's claim for
reimbursement for advances made by him for the partnerships, as shown in the
statement attached to the complaint marked Exhibit A, in which there is a
balance in his favor and against the partnership amounting to over P16,000.

X. Lastly, considering the irregularities committed, the disappearance of the

stenographic notes for a considerable length of time, during which time changes
in the testimonies of the witnesses could have been made and the impossibility
of having an accurate and complete transcript of the stenographic notes, the trial
court erred in denying appellant's petition for the retaking of the evidence in this
case.

JOHNS, J.:

By their respective pleadings, all parties agreed that there was a partnership between
them, which appears at one time to have done a good business. In legal effect, plaintiff
asked for its dissolution and the appointment of a receiver pendente lite. The defendants
did not object to the dissolution of the partnership, but prayed for an accounting with the
plaintiff. It was upon such issues that the evidence was taken and the case tried. Hence,
there is no merit in the first in the first assignment of error. Complaint is made that the
lower court did not specifically decide as to whether or not the plaintiff was the manager
of the unregistered partnership. But upon that question the lower court, in legal effect,
followed and approved the contention of the defendants that the duties of each partners
were specified and defined in the "plans for formation of a limited partnership," in which
it is stated that Captain Maddy would have charge of the Barracuda and its navigation,
with a salary of P300 per month, and that Martin would have charge of the southern
station, cold stores, commisary and procuring fish, with a salary of P300 per month, and
that the plaintiff would have charge of selling fish in Manila and purchasing supplies,
without salary until such time as the business is placed on a paying basis, when his
salary would be the same as that of Maddy and Martin, and that the principal office of
the partnership "shall keep books showing plainly all transactions," which shall be
available at all time for inspection of any of the members.

It will thus be noted that the powers and duties of Maddy Martin, and the plaintiff are
specifically defined, and that each of them was more or less the general manager in his
particular part of the business. That is to say, that Maddy's power and duties are confined
and limited to the charge of the Barracuda and its navigation, and Martin's to the southern
station, cold stores, commissary and procuring fish, and that plaintiff's powers and duties
are confined and limited to "selling fish in Manila and the purchase of supplies." In the
selling of fish, plaintiff received a substantial amount of money which he deposited to the
credit of the company signed by him as manager, but it appears that was a requirement
which the bank made in the ordinary course of business, as to who was authorized to
sign checks for the partnership; otherwise, it would not cash the checks.

In the final analysis, the important question in this case is the ownership of the Lapu-
Lapu, the Ford truck, and the adding machine. The proof is conclusive that they were
purchased by the plaintiff and paid for him from and out of the money of the partnership.
That at the time of their purchase, the Lapu-Lapu was purchased in the name of the
plaintiff, and that he personally had it registered in the customs house in his own name,
for which he made an affidavit that he was its owner. After the purchase, he also had the
Ford truck registered in his won name. His contention that this was done as a matter of
convenience is not tenable. The record shows that when the partnership purchased the
Barracuda, it was registered in the customs house in the name of the partnership, and
that it was a very simple process to have it so registered.

Without making a detailed analysis of the evidence, we agree with the trial court that the
Lapu-Lapu, the Ford truck, and the adding machine were purchased by the plaintiff and
paid for out of the funds of the partnership, and that by his own actions and conduct, and
the taking of the title in his own name, he is now estopped to claim or assert that they
are not his property or that they are the property of the company. Again, under his powers
and duties as specified in the tentative, unsigned written agreement, his authority was
confined and limited to the "selling of fish in Manila and the purchase of supplies." It must
be conceded that, standing alone, the power to sell fish and purchase supplies does not
carry with it or imply the authority to purchase the Lapu-Lapu, or the Ford truck, or the
adding machine. From which it must follow that he had no authority to purchase the
lighter Lapu-Lapu, the Ford truck, or the adding machine, as neither of them can be
construed as supplies for the partnership business. While it is true that the tentative
agreement was never personally signed by any member of the firm, the trial court found
as a fact, and that finding is sustained by the evidence, that this unsigned agreement
was acted upon and accepted by all parties as the basis of the partnership. It was upon
that theory that the lower court allowed the defendant s Maddy and Martin a salary of
P300 per month and the money which each of them paid out and advanced in the
discharged of their respective duties, and denied any salary to the plaintiff, for the simple
reason that the business was never on a paying basis.

Much could be said about this division of powers, and that Maddy and Martin's duties
were confined and limited to the catching and procuring of fish, which were then shipped
to the plaintiff who sold them on the Manila market and received the proceeds of the
sales. In other words, Maddy and Martin were supplying the fish to plaintiff who sold
them under an agreement that he would account for the money.

Upon the question of accounting, his testimony as to the entries which he made and how
he kept the books of the partnership is very interesting:

Q. Then this salary does not take into consideration the fact that you
claim the company is very badly in debt? —

A. Well, I put the salary in there.

Q. I am asking you if that is true? —

A. I do not think I will decide that, I think it will be decided by the

court.

Q. I will ask you to answer the question? —

A. You asked me my opinion and I said that I am entitled to it.

xxx xxx xxx

I am not on trial as a bookkeeper; if my lawyers won't object to the question I will

object myself; I am not on trial as a bookkeeper; I keep my books any way I want
to, put in what I want to, and I leave out anything I don't choose to put in, —

xxx xxx xxx

Q. You have your own bookkeeping? —

A. Well, I run my business to suit myself, I put in the books what I

want to, and I leave out what I want to, and I have a quarter of a million
pesos to show for it, —
 xxx xxx xxx

Q. Did you not say that you paid yourself a salary in August because
you made a profit? —

A. Yes. This profit was made counting the stock on hand and
equipment on hand, but as far as cash to pay this balance, I did not have it.
when I wanted a salary I just took it. I ran things to suit myself.

xxx xxx xxx

Q. In other words in going against these partners you are going to

tax them for the services of your attorney? —

A. You are mistaken; I am not against them. I paid this out for filing
this complaint and if the honorable court strikes it out, all right. I think it was
a just charge. When I want to sue them the Company can pay for my suit.

Q. Would you have any objection to their asking for their attorney's
fees from the company as partners also in the business? —

A. Yes.

Q. You would object to your partners having their attorney's fees

here paid out of the copartnership like you have had yours paid? —

A. Yes, that is the way I do my business.

To say the least, this kind of evidence does not appeal to the court. This case has been
bitterly contested, and there is much feeling between the parties and even their
respective attorneys. Be that as it may, we are clearly of the opinion that the findings of
the lower court upon questions of fact are well sustained by the evidence. Plaintiff's case
was tried on the theory that the partnership was the owner of the property in question,
and no claim was made for the use of the Lapu-Lapu, and it appears that P14,032.26 of
the partnership money was used in its purchase, overhauling, expenses and repairs.
That in truth and in fact the partnership had the use and benefit of the Lapu-Lapu in its
business from sometime in May until the receiver was appointed on November 11, 1927,
or a period of about six months, and that the partnership has never paid anything for its
use. it is true that there is no testimony as to the value of such use, but the cost of the
Lapu-Lapu and the time of its use and the purpose for which it was used, all appear in
the record. For such reason, in the interest of justice, plaintiff should be compensated
for the reasonable value of the time which the partnership made use of the Lapu-Lapu.
All things considered, we are of the opinion that P2,000 is a reasonable, amount which
the plaintiff should receive for its use.

In all things and respects, the judgment of the lower court as to the merits is affirmed,
with the modification only that P2,000 shall be deducted from the amount of the judgment
which was awarded against the plaintiff, such deduction to be made for and on account
of such use of the Lapu-Lapu by the partnership, with costs against the appellant. So
ordered.

Avanceña, C.J., Street, Villamor, Romualdez and Villa-Real, JJ. concur.

Johnson, J., reserves his vote.

G.R. No. 153788 November 27, 2009

ROGER V. NAVARRO, Petitioner,
vs.
HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro City,
and KAREN T. GO, doing business under the name KARGO ENTERPRISES,
Respondents.
BRION, J.:
This is a petition for review on certiorari1 that seeks to set aside the Court of Appeals
(CA) Decision2 dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-
G.R. SP. No. 64701. These CA rulings affirmed the July 26, 20004 and March 7,
20015 orders of the Regional Trial Court (RTC), Misamis Oriental, Cagayan de Oro
City, denying petitioner Roger V. Navarro’s (Navarro) motion to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as
Civil Case Nos. 98-599 (first complaint)6 and 98-598 (second complaint),7 before the
RTC for replevin and/or sum of money with damages against Navarro. In these
complaints, Karen Go prayed that the RTC issue writs of replevin for the seizure of two
(2) motor vehicles in Navarro’s possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN O. GO, a
resident of Cagayan de Oro City and doing business under the trade name KARGO
ENTERPRISES, an entity duly registered and existing under and by virtue of the laws
of the Republic of the Philippines, which has its business address at Bulua, Cagayan
de Oro City; that defendant ROGER NAVARRO is a Filipino, of legal age, a resident of
62 Dolores Street, Nazareth, Cagayan de Oro City, where he may be served with
summons and other processes of the Honorable Court; that defendant "JOHN DOE"
whose real name and address are at present unknown to plaintiff is hereby joined as
party defendant as he may be the person in whose possession and custody the
personal property subject matter of this suit may be found if the same is not in the
possession of defendant ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of, among others, buying and
selling motor vehicles, including hauling trucks and other heavy equipment;
3. That for the cause of action against defendant ROGER NAVARRO, it is hereby
stated that on August 8, 1997, the said defendant leased [from] plaintiff a certain motor
vehicle which is more particularly described as follows –
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into
by and between KARGO ENTERPRISES, then represented by its Manager, the
aforementioned GLENN O. GO, and defendant ROGER NAVARRO xxx; that in
accordance with the provisions of the above LEASE AGREEMENT WITH OPTION TO
PURCHASE, defendant ROGER NAVARRO delivered unto plaintiff six (6) post-dated
checks each in the amount of SIXTY-SIX THOUSAND THREE HUNDRED THIRTY-
THREE & 33/100 PESOS (₱66,333.33) which were supposedly in payment of the
agreed rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS – CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and
017113, respectively dated January 8, 1998 and February 8, 1998, were presented for
payment and/or credit, the same were dishonored and/or returned by the drawee bank
for the common reason that the current deposit account against which the said checks
were issued did not have sufficient funds to cover the amounts thereof; that the total
amount of the two (2) checks, i.e. the sum of ONE HUNDRED THIRTY-TWO
THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66) therefore
represents the principal liability of defendant ROGER NAVARRO unto plaintiff on the
basis of the provisions of the above LEASE AGREEMENT WITH RIGHT TO
PURCHASE; that demands, written and oral, were made of defendant ROGER
NAVARRO to pay the amount of ONE HUNDRED THIRTY-TWO THOUSAND SIX
HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66), or to return the subject motor
vehicle as also provided for in the LEASE AGREEMENT WITH RIGHT TO
PURCHASE, but said demands were, and still are, in vain to the great damage and
injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the subject of any tax
assessment and/or fine pursuant to law, or seized under an execution or an
attachment as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the
immediate delivery of the above-described motor vehicle from defendants unto plaintiff
pending the final determination of this case on the merits and, for that purpose, there is
attached hereto an affidavit duly executed and bond double the value of the personal
property subject matter hereof to answer for damages and costs which defendants
may suffer in the event that the order for replevin prayed for may be found out to
having not been properly issued.
The second complaint contained essentially the same allegations as the first complaint,
except that the Lease Agreement with Option to Purchase involved is dated October 1,
1997 and the motor vehicle leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three post-dated checks,
each for the amount of ₱100,000.00, to Karen Go in payment of the agreed rentals;
however, the third check was dishonored when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for
both cases; as a result, the Sheriff seized the two vehicles and delivered them to the
possession of Karen Go.
In his Answers, Navarro alleged as a special affirmative defense that the two
complaints stated no cause of action, since Karen Go was not a party to the Lease
Agreements with Option to Purchase (collectively, the lease agreements) – the
actionable documents on which the complaints were based.
On Navarro’s motion, both cases were duly consolidated on December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the ground that the
complaints did not state a cause of action.
In response to the motion for reconsideration Karen Go filed dated May 26, 2000,11
the RTC issued another order dated July 26, 2000 setting aside the order of dismissal.
Acting on the presumption that Glenn Go’s leasing business is a conjugal property, the
RTC held that Karen Go had sufficient interest in his leasing business to file the action
against Navarro. However, the RTC held that Karen Go should have included her
husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the Rules of Court
(Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of
Glenn Go as co-plaintiff.1avvphi1
When the RTC denied Navarro’s motion for reconsideration on March 7, 2001, Navarro
filed a petition for certiorari with the CA, essentially contending that the RTC committed
grave abuse of discretion when it reconsidered the dismissal of the case and directed
Karen Go to amend her complaints by including her husband Glenn Go as co-plaintiff.
According to Navarro, a complaint which failed to state a cause of action could not be
converted into one with a cause of action by mere amendment or supplemental
pleading.
On October 16, 2001, the CA denied Navarro’s petition and affirmed the RTC’s
order.13 The CA also denied Navarro’s motion for reconsideration in its resolution of
May 29, 2002,14 leading to the filing of the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the name of Kargo
Enterprises, since it did not have the requisite juridical personality to sue, the actual
parties to the agreement are himself and Glenn Go. Since it was Karen Go who filed
the complaints and not Glenn Go, she was not a real party-in-interest and the
complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the amendment of the complaint to
include Glenn Go as a co-plaintiff, instead of dismissing the complaint outright because
a complaint which does not state a cause of action cannot be converted into one with a
cause of action by a mere amendment or a supplemental pleading. In effect, the lower
court created a cause of action for Karen Go when there was none at the time she filed
the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically
changed the theory of the complaints, to his great prejudice. Navarro claims that the
lower court gravely abused its discretion when it assumed that the leased vehicles are
part of the conjugal property of Glenn and Karen Go. Since Karen Go is the registered
owner of Kargo Enterprises, the vehicles subject of the complaint are her paraphernal
properties and the RTC gravely erred when it ordered the inclusion of Glenn Go as a
co-plaintiff.
Navarro likewise faults the lower court for setting the trial of the case in the same order
that required Karen Go to amend her complaints, claiming that by issuing this order,
the trial court violated Rule 10 of the Rules.
Even assuming the complaints stated a cause of action against him, Navarro maintains
that the complaints were premature because no prior demand was made on him to
comply with the provisions of the lease agreements before the complaints for replevin
were filed.
Lastly, Navarro posits that since the two writs of replevin were issued based on flawed
complaints, the vehicles were illegally seized from his possession and should be
returned to him immediately.
Karen Go, on the other hand, claims that it is misleading for Navarro to state that she
has no real interest in the subject of the complaint, even if the lease agreements were
signed only by her husband, Glenn Go; she is the owner of Kargo Enterprises and
Glenn Go signed the lease agreements merely as the manager of Kargo Enterprises.
Moreover, Karen Go maintains that Navarro’s insistence that Kargo Enterprises is
Karen Go’s paraphernal property is without basis. Based on the law and jurisprudence
on the matter, all property acquired during the marriage is presumed to be conjugal
property. Finally, Karen Go insists that her complaints sufficiently established a cause
of action against Navarro. Thus, when the RTC ordered her to include her husband as
co-plaintiff, this was merely to comply with the rule that spouses should sue jointly, and
was not meant to cure the complaints’ lack of cause of action.
THE COURT’S RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every action must be prosecuted or
defended in the name of the real party-in-interest, i.e., the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit.15
Interestingly, although Navarro admits that Karen Go is the registered owner of the
business name Kargo Enterprises, he still insists that Karen Go is not a real party-in-
interest in the case. According to Navarro, while the lease contracts were in Kargo
Enterprises’ name, this was merely a trade name without a juridical personality, so the
actual parties to the lease agreements were Navarro and Glenn Go, to the exclusion of
Karen Go.
As a corollary, Navarro contends that the RTC acted with grave abuse of discretion
when it ordered the inclusion of Glenn Go as co-plaintiff, since this in effect created a
cause of action for the complaints when in truth, there was none.
We do not find Navarro’s arguments persuasive.
The central factor in appreciating the issues presented in this case is the business
name Kargo Enterprises. The name appears in the title of the Complaint where the
plaintiff was identified as "KAREN T. GO doing business under the name KARGO
ENTERPRISES," and this identification was repeated in the first paragraph of the
Complaint. Paragraph 2 defined the business KARGO ENTERPRISES undertakes.
Paragraph 3 continued with the allegation that the defendant "leased from plaintiff a
certain motor vehicle" that was thereafter described. Significantly, the Complaint
specifies and attaches as its integral part the Lease Agreement that underlies the
transaction between the plaintiff and the defendant. Again, the name KARGO
ENTERPRISES entered the picture as this Lease Agreement provides:
This agreement, made and entered into by and between:
GLENN O. GO, of legal age, married, with post office address at xxx, herein referred to
as the LESSOR-SELLER; representing KARGO ENTERPRISES as its Manager,
xxx
thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go
represented. In other words, by the express terms of this Lease Agreement, Glenn Go
did sign the agreement only as the manager of Kargo Enterprises and the latter is
clearly the real party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is
neither a natural person, nor a juridical person, as defined by Article 44 of the Civil
Code:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created
by law; their personality begins as soon as they have been constituted according to
law;
(3) Corporations, partnerships and associations for private interest or purpose to which
the law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member.
Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a
party to a civil action. This legal reality leads to the question: who then is the proper
party to file an action based on a contract in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v. Mendoza,17 where we said:
Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in
court. The law merely recognizes the existence of a sole proprietorship as a form of
business organization conducted for profit by a single individual, and requires the
proprietor or owner thereof to secure licenses and permits, register the business name,
and pay taxes to the national government. It does not vest juridical or legal personality
upon the sole proprietorship nor empower it to file or defend an action in court.
Thus, the complaint in the court below should have been filed in the name of the owner
of Juasing Hardware. The allegation in the body of the complaint would show that the
suit is brought by such person as proprietor or owner of the business conducted under
the name and style Juasing Hardware. The descriptive words "doing business as
Juasing Hardware" may be added to the title of the case, as is customarily done.18
[Emphasis supplied.]
This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which
states:
SEC. 2. Parties in interest. – A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.
As the registered owner of Kargo Enterprises, Karen Go is the party who will directly
benefit from or be injured by a judgment in this case. Thus, contrary to Navarro’s
contention, Karen Go is the real party-in-interest, and it is legally incorrect to say that
her Complaint does not state a cause of action because her name did not appear in
the Lease Agreement that her husband signed in behalf of Kargo Enterprises. Whether
Glenn Go can legally sign the Lease Agreement in his capacity as a manager of Kargo
Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter for
the trial court to consider in a trial on the merits.
Glenn Go’s Role in the Case
We find it significant that the business name Kargo Enterprises is in the name of Karen
T. Go,19 who described herself in the Complaints to be "a Filipino, of legal age,
married to GLENN O. GO, a resident of Cagayan de Oro City, and doing business
under the trade name KARGO ENTERPRISES."20 That Glenn Go and Karen Go are
married to each other is a fact never brought in issue in the case. Thus, the business
name KARGO ENTERPRISES is registered in the name of a married woman, a fact
material to the side issue of whether Kargo Enterprises and its properties are
paraphernal or conjugal properties. To restate the parties’ positions, Navarro alleges
that Kargo Enterprises is Karen Go’s paraphernal property, emphasizing the fact that
the business is registered solely in Karen Go’s name. On the other hand, Karen Go
contends that while the business is registered in her name, it is in fact part of their
conjugal property.
The registration of the trade name in the name of one person – a woman – does not
necessarily lead to the conclusion that the trade name as a property is hers alone,
particularly when the woman is married. By law, all property acquired during the
marriage, whether the acquisition appears to have been made, contracted or
registered in the name of one or both spouses, is presumed to be conjugal unless the
contrary is proved.21 Our examination of the records of the case does not show any
proof that Kargo Enterprises and the properties or contracts in its name are conjugal. If
at all, only the bare allegation of Navarro to this effect exists in the records of the case.
As we emphasized in Castro v. Miat:22
Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property
of the marriage is presumed to be conjugal partnership, unless it be prove[n] that it
pertains exclusively to the husband or to the wife." This article does not require proof
that the property was acquired with funds of the partnership. The presumption applies
even when the manner in which the property was acquired does not appear.23
[Emphasis supplied.]
Thus, for purposes solely of this case and of resolving the issue of whether Kargo
Enterprises as a sole proprietorship is conjugal or paraphernal property, we hold that it
is conjugal property.
Article 124 of the Family Code, on the administration of the conjugal property,
provides:
Art. 124. The administration and enjoyment of the conjugal partnership property shall
belong to both spouses jointly. In case of disagreement, the husband’s decision shall
prevail, subject to recourse to the court by the wife for proper remedy, which must be
availed of within five years from the date of the contract implementing such decision.
xxx
This provision, by its terms, allows either Karen or Glenn Go to speak and act with
authority in managing their conjugal property, i.e., Kargo Enterprises. No need exists,
therefore, for one to obtain the consent of the other before performing an act of
administration or any act that does not dispose of or encumber their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership is governed by the rules
on the contract of partnership in all that is not in conflict with what is expressly
determined in this Chapter or by the spouses in their marriage settlements. In other
words, the property relations of the husband and wife shall be governed primarily by
Chapter 4 on Conjugal Partnership of Gains of the Family Code and, suppletorily, by
the spouses’ marriage settlement and by the rules on partnership under the Civil Code.
In the absence of any evidence of a marriage settlement between the spouses Go, we
look at the Civil Code provision on partnership for guidance.
A rule on partnership applicable to the spouses’ circumstances is Article 1811 of the
Civil Code, which states:
Art. 1811. A partner is a co-owner with the other partners of specific partnership
property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the
partners, has an equal right with his partners to possess specific partnership property
for partnership purposes; xxx
Under this provision, Glenn and Karen Go are effectively co-owners of Kargo
Enterprises and the properties registered under this name; hence, both have an equal
right to seek possession of these properties. Applying Article 484 of the Civil Code,
which states that "in default of contracts, or special provisions, co-ownership shall be
governed by the provisions of this Title," we find further support in Article 487 of the
Civil Code that allows any of the co-owners to bring an action in ejectment with respect
to the co-owned property.
While ejectment is normally associated with actions involving real property, we find that
this rule can be applied to the circumstances of the present case, following our ruling in
Carandang v. Heirs of De Guzman.24 In this case, one spouse filed an action for the
recovery of credit, a personal property considered conjugal property, without including
the other spouse in the action. In resolving the issue of whether the other spouse was
required to be included as a co-plaintiff in the action for the recovery of the credit, we
said:
Milagros de Guzman, being presumed to be a co-owner of the credits allegedly
extended to the spouses Carandang, seems to be either an indispensable or a
necessary party. If she is an indispensable party, dismissal would be proper. If she is
merely a necessary party, dismissal is not warranted, whether or not there was an
order for her inclusion in the complaint pursuant to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the rules on the contract of
partnership in all that is not in conflict with what is expressly determined in this Chapter
or by the spouses in their marriage settlements.
This provision is practically the same as the Civil Code provision it superseded:
Art. 147. The conjugal partnership shall be governed by the rules on the contract of
partnership in all that is not in conflict with what is expressly determined in this
Chapter.
In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-
owner with the other partners of specific partnership property." Taken with the
presumption of the conjugal nature of the funds used to finance the four checks used
to pay for petitioners’ stock subscriptions, and with the presumption that the credits
themselves are part of conjugal funds, Article 1811 makes Quirino and Milagros de
Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de Guzman may
separately bring an action for the recovery thereof. In the fairly recent cases of Baloloy
v. Hular and Adlawan v. Adlawan, we held that, in a co-ownership, co-owners may
bring actions for the recovery of co-owned property without the necessity of joining all
the other co-owners as co-plaintiffs because the suit is presumed to have been filed for
the benefit of his co-owners. In the latter case and in that of De Guia v. Court of
Appeals, we also held that Article 487 of the Civil Code, which provides that any of the
co-owners may bring an action for ejectment, covers all kinds of action for the recovery
of possession.
In sum, in suits to recover properties, all co-owners are real parties in interest.
However, pursuant to Article 487 of the Civil Code and relevant jurisprudence, any one
of them may bring an action, any kind of action, for the recovery of co-owned
properties. Therefore, only one of the co-owners, namely the co-owner who filed the
suit for the recovery of the co-owned property, is an indispensable party thereto. The
other co-owners are not indispensable parties. They are not even necessary parties,
for a complete relief can be accorded in the suit even without their participation, since
the suit is presumed to have been filed for the benefit of all co-owners.25 [Emphasis
supplied.]
Under this ruling, either of the spouses Go may bring an action against Navarro to
recover possession of the Kargo Enterprises-leased vehicles which they co-own. This
conclusion is consistent with Article 124 of the Family Code, supporting as it does the
position that either spouse may act on behalf of the conjugal partnership, so long as
they do not dispose of or encumber the property in question without the other spouse’s
consent.
On this basis, we hold that since Glenn Go is not strictly an indispensable party in the
action to recover possession of the leased vehicles, he only needs to be impleaded as
a pro-forma party to the suit, based on Section 4, Rule 4 of the Rules, which states:
Section 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except
as provided by law.
Non-joinder of indispensable parties not ground to dismiss action
Even assuming that Glenn Go is an indispensable party to the action, we have held in
a number of cases26 that the misjoinder or non-joinder of indispensable parties in a
complaint is not a ground for dismissal of action. As we stated in Macababbad v.
Masirag:27
Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder
of parties is a ground for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of
parties is ground for dismissal of an action. Parties may be dropped or added by order
of the court on motion of any party or on its own initiative at any stage of the action and
on such terms as are just. Any claim against a misjoined party may be severed and
proceeded with separately.
In Domingo v. Scheer, this Court held that the proper remedy when a party is left out is
to implead the indispensable party at any stage of the action. The court, either motu
proprio or upon the motion of a party, may order the inclusion of the indispensable
party or give the plaintiff opportunity to amend his complaint in order to include
indispensable parties. If the plaintiff to whom the order to include the indispensable
party is directed refuses to comply with the order of the court, the complaint may be
dismissed upon motion of the defendant or upon the court's own motion. Only upon
unjustified failure or refusal to obey the order to include or to amend is the action
dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her
husband as a party plaintiff is fully in order.
Demand not required prior
to filing of replevin action
In arguing that prior demand is required before an action for a writ of replevin is filed,
Navarro apparently likens a replevin action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is to file an affidavit and
bond, pursuant to Section 2, Rule 60 of the Rules, which states:
Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of some other person who
personally knows the facts:
(a) That the applicant is the owner of the property claimed, particularly describing it, or
is entitled to the possession thereof;
(b) That the property is wrongfully detained by the adverse party, alleging the cause of
detention thereof according to the best of his knowledge, information, and belief;
(c) That the property has not been distrained or taken for a tax assessment or a fine
pursuant to law, or seized under a writ of execution or preliminary attachment, or
otherwise placed under custodia legis, or if so seized, that it is exempt from such
seizure or custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the adverse party in double the value
of the property as stated in the affidavit aforementioned, for the return of the property
to the adverse party if such return be adjudged, and for the payment to the adverse
party of such sum as he may recover from the applicant in the action.
We see nothing in these provisions which requires the applicant to make a prior
demand on the possessor of the property before he can file an action for a writ of
replevin. Thus, prior demand is not a condition precedent to an action for a writ of
replevin.
More importantly, Navarro is no longer in the position to claim that a prior demand is
necessary, as he has already admitted in his Answers that he had received the letters
that Karen Go sent him, demanding that he either pay his unpaid obligations or return
the leased motor vehicles. Navarro’s position that a demand is necessary and has not
been made is therefore totally unmeritorious.
WHEREFORE, premises considered, we DENY the petition for review for lack of merit.
Costs against petitioner Roger V. Navarro.

G.R. No. 178782 September 21, 2011

JOSEFINA P. REALUBIT, Petitioner,
vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.
PEREZ, J.:
The validity as well as the consequences of an assignment of rights in a joint venture
are at issue in this petition for review filed pursuant to Rule 45 of the 1997 Rules of
Civil Procedure,1 assailing the 30 April 2007 Decision2 rendered by the Court of
Appeals’ (CA) then Twelfth Division in CA-G.R. CV No. 73861,3 the dispositive portion
of which states:
WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution
of the joint venture between defendant-appellant Josefina Realubit and Francis Eric
Amaury Biondo and the subsequent conduct of accounting, liquidation of assets and
division of shares of the joint venture business.
Let a copy hereof and the records of the case be remanded to the trial court for
appropriate proceedings.4
The Facts
On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture
Agreement with Francis Eric Amaury Biondo (Biondo), a French national, for the
operation of an ice manufacturing business. With Josefina as the industrial partner and
Biondo as the capitalist partner, the parties agreed that they would each receive 40%
of the net profit, with the remaining 20% to be used for the payment of the ice making
machine which was purchased for the business.5 For and in consideration of the sum
of ₱500,000.00, however, Biondo subsequently executed a Deed of Assignment dated
27 June 1997, transferring all his rights and interests in the business in favor of
respondent Eden Jaso (Eden), the wife of respondent Prosencio Jaso.6 With Biondo’s
eventual departure from the country, the Spouses Jaso caused their lawyer to send
Josefina a letter dated 19 February 1998, apprising her of their acquisition of said
Frenchman’s share in the business and formally demanding an accounting and
inventory thereof as well as the remittance of their portion of its profits.7
Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso
commenced the instant suit with the filing of their 3 August 1998 Complaint against
Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for specific
performance, accounting, examination, audit and inventory of assets and properties,
dissolution of the joint venture, appointment of a receiver and damages. Docketed as
Civil Case No. 98-0331 before respondent Branch 257 of the Regional Trial Court
(RTC) of Parañaque City, said complaint alleged, among other matters, that the
Spouses Realubit had no gainful occupation or business prior to their joint venture with
Biondo; that with the income of the business which earned not less than ₱3,000.00 per
day, they were, however, able to acquire the two-storey building as well as the land on
which the joint venture’s ice plant stands, another building which they used as their
office and/or residence and six (6) delivery vans; and, that aside from appropriating for
themselves the income of the business, the Spouses Realubit have fraudulently
concealed the funds and assets thereof thru their relatives, associates or dummies.8
Served with summons, the Spouses Realubit filed their Answer dated 21 October
1998, specifically denying the material allegations of the foregoing complaint. Claiming
that they have been engaged in the tube ice trading business under a single
proprietorship even before their dealings with Biondo, the Spouses Realubit, in turn,
averred that their said business partner had left the country in May 1997 and could not
have executed the Deed of Assignment which bears a signature markedly different
from that which he affixed on their Joint Venture Agreement; that they refused the
Spouses Jaso’s demand in view of the dubious circumstances surrounding their
acquisition of Biondo’s share in the business which was established at Don Antonio
Heights, Commonwealth Avenue, Quezon City; that said business had already stopped
operations on 13 January 1996 when its plant shut down after its power supply was
disconnected by MERALCO for non-payment of utility bills; and, that it was their own
tube ice trading business which had been moved to 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City that the Spouses Jaso mistook for the ice
manufacturing business established in partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference subsequently
terminated, the RTC went on to try the case on its merits and, thereafter, to render its
Decision dated 17 September 2001, discounting the existence of sufficient evidence
from which the income, assets and the supposed dissolution of the joint venture can be
adequately reckoned. Upon the finding, however, that the Spouses Jaso had been
nevertheless subrogated to Biondo’s rights in the business in view of their valid
acquisition of the latter’s share as capitalist partner,10 the RTC disposed of the case in
the following wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting
and inventory of the assets and liabilities of the joint venture from its inception to the
present, to allow plaintiffs access to the books and accounting records of the joint
venture, to deliver to plaintiffs their share in the profits, if any, and to pay the plaintiffs
the amount of ₱20,000. for moral damages. The claims for exemplary damages and
attorney’s fees are denied for lack of basis.11
On appeal before the CA, the foregoing decision was set aside in the herein assailed
Decision dated 30 April 2007, upon the following findings and conclusions: (a) the
Spouses Jaso validly acquired Biondo’s share in the business which had been
transferred to and continued its operations at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City and not dissolved as claimed by the Spouses
Realubit; (b) absent showing of Josefina’s knowledge and consent to the transfer of
Biondo’s share, Eden cannot be considered as a partner in the business, pursuant to
Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondo’s share in
the profits of the business, Eden cannot, however, interfere with the management of
the partnership, require information or account of its transactions and inspect its books;
(d) the partnership should first be dissolved before Eden can seek an accounting of its
transactions and demand Biondo’s share in the business; and, (e) the evidence
adduced before the RTC do not support the award of moral damages in favor of the
Spouses Jaso.12
The Spouses Realubit’s motion for reconsideration of the foregoing decision was
denied for lack of merit in the CA’s 28 June 2007 Resolution,13 hence, this petition.
The Issues
The Spouses Realubit urge the reversal of the assailed decision upon the negative of
the following issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE
JOINT VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS
PARTNER IN THE JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE
WHO IS NOT A PARTNER IN SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN
THE JOINT VENTURE AND IN THE SEPARATE ICE BUSINESS OF
PETITIONER[S].14
The Court’s Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA
inordinately gave premium to the notarization of the 27 June 1997 Deed of Assignment
executed by Biondo in favor of the Spouses Jaso. Calling attention to the latter’s failure
to present before the RTC said assignor or, at the very least, the witnesses to said
document, the Spouses Realubit maintain that the testimony of Rolando Diaz, the
Notary Public before whom the same was acknowledged, did not suffice to establish its
authenticity and/or validity. They insist that notarization did not automatically and
conclusively confer validity on said deed, since it is still entirely possible that Biondo
did not execute said deed or, for that matter, appear before said notary public.15 The
dearth of merit in the Spouses Realubit’s position is, however, immediately evident
from the settled rule that documents acknowledged before notaries public are public
documents which are admissible in evidence without necessity of preliminary proof as
to their authenticity and due execution.16
It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo
executed in favor of Eden not only enjoys a presumption of regularity17 but is also
considered prima facie evidence of the facts therein stated.18 A party assailing the
authenticity and due execution of a notarized document is, consequently, required to
present evidence that is clear, convincing and more than merely preponderant.19 In
view of the Spouses Realubit’s failure to discharge this onus, we find that both the RTC
and the CA correctly upheld the authenticity and validity of said Deed of Assignment
upon the combined strength of the above-discussed disputable presumptions and the
testimonies elicited from Eden20 and Notary Public Rolando Diaz.21 As for the Spouses’
Realubit’s bare assertion that Biondo’s signature on the same document appears to be
forged, suffice it to say that, like fraud,22 forgery is never presumed and must likewise
be proved by clear and convincing evidence by the party alleging the same.23 Aside
from not being borne out by a comparison of Biondo’s signatures on the Joint Venture
Agreement24 and the Deed of Assignment,25 said forgery is, moreover debunked by
Biondo’s duly authenticated certification dated 17 November 1998, confirming the
transfer of his interest in the business in favor of Eden.26
Generally understood to mean an organization formed for some temporary purpose, a
joint venture is likened to a particular partnership or one which "has for its object
determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation."27 The rule is settled that joint ventures are governed by the law
on partnerships28 which are, in turn, based on mutual agency or delectus personae.29
Insofar as a partner’s conveyance of the entirety of his interest in the partnership is
concerned, Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not
itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to interfere
in the management or administration of the partnership business or affairs, or to
require any information or account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive in accordance with his
contracts the profits to which the assigning partners would otherwise be entitled.
However, in case of fraud in the management of the partnership, the assignee may
avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to receive his
assignor’s interest and may require an account from the date only of the last account
agreed to by all the partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of his
partnership interest does not make the assignee of such interest a partner of the firm,
nor entitle the assignee to interfere in the management of the partnership business or
to receive anything except the assignee’s profits. The assignment does not purport to
transfer an interest in the partnership, but only a future contingent right to a portion of
the ultimate residue as the assignor may become entitled to receive by virtue of his
proportionate interest in the capital."30 Since a partner’s interest in the partnership
includes his share in the profits,31 we find that the CA committed no reversible error in
ruling that the Spouses Jaso are entitled to Biondo’s share in the profits, despite
Juanita’s lack of consent to the assignment of said Frenchman’s interest in the joint
venture. Although Eden did not, moreover, become a partner as a consequence of the
assignment and/or acquire the right to require an accounting of the partnership
business, the CA correctly granted her prayer for dissolution of the joint venture
conformably with the right granted to the purchaser of a partner’s interest under Article
1831 of the Civil Code.32 1âwphi1
Considering that they involve questions of fact, neither are we inclined to hospitably
entertain the Spouses Realubit’s insistence on the supposed fact that Josefina’s joint
venture with Biondo had already been dissolved and that the ice manufacturing
business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was
merely a continuation of the same business they previously operated under a single
proprietorship. It is well-entrenched doctrine that questions of fact are not proper
subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of
appeal is confined to questions of law.33 Upon the principle that this Court is not a trier
of facts, we are not duty bound to examine the evidence introduced by the parties
below to determine if the trial and the appellate courts correctly assessed and
evaluated the evidence on record.34 Absent showing that the factual findings
complained of are devoid of support by the evidence on record or the assailed
judgment is based on misapprehension of facts, the Court will limit itself to reviewing
only errors of law.35
Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the
dissolution of the joint venture and concluded that the ice manufacturing business at
the aforesaid address was the same one established by Juanita and Biondo. As a rule,
findings of fact of the CA are binding and conclusive upon this Court,38 and will not be
reviewed or disturbed on appeal39 unless the case falls under any of the following
recognized exceptions: (1) when the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the CA, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee; (7)
when the findings are contrary to those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioners' main and reply briefs are
not disputed by the respondents; and, (10) when the findings of fact of the CA are
premised on the supposed absence of evidence and contradicted by the evidence on
record.40 Unfortunately for the Spouses Realubit’s cause, not one of the foregoing
exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision
dated 30 April 2007 is, accordingly, AFFIRMED in toto.
SO ORDERED.
THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, Petitioners, v.
SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance of Leyte
and OLEGARIO LASTRILLA, Respondents.

SYLLABUS
1. PARTNERSHIP; PARTNER IS NOT CREDITOR OF PARTNERSHIP. — The
partner of a partnership is not a creditor of such partnership for the amount of his
share.

2. ACTIONS; REMEDY OF OWNER OF PROPERTY WRONGFULLY SOLD. — The

remedy of the owner of a property wrongfully sold is to claim the property and not the
proceeds of the sale.

3. PARTIES; WANT OF NECESSARY AND INDISPENSABLE PARTIES; EFFECT OF.

— A valid judgment cannot be rendered where there is a want of necessary parties,
and a court cannot properly adjudicate matters involved in a suit when necessary and
indispensable parties to the proceedings are not before it.

4. CERTIORARI; WHEN ACTION WILL LIE. — Where the lower court has acted
without jurisdiction over the subject matter, or where the order or judgment complained
of is a patent nullity, the judgment should be set aside although an appeal was
available but was not availed of.
BENGZON, J.:
Labeled" Certiorari and Prohibition with Preliminary Injunction" this petition actually
prays for the additional writ of mandamus to compel the respondent judge to give due
course to petitioners’ appeal from his order taxing costs. However, inasmuch as
according to the answer, petitioners through their attorney withdrew their cash appeal
bond of P60 after the record on appeal had been rejected, the matter of mandamus
may summarily be dropped without further comment.

From the pleadings it appears that,

In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages
by the Leyte-Samar Sales Co. (hereinafter called LESSCO) and Raymond Tomassi
against the Far Eastern Lumber & Commercial Co. (unregistered commercial
partnership hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas,
judgment against defendants jointly and severally for the amount of P31,589.14 plus
costs was rendered on October 29, 1948. The Court of Appeals confirmed the award in
November 1950, minus P2,000 representing attorney’s fees mistakenly included. The
decision having become final, the sheriff sold at auction on June 9, 1951 to Robert
Dorfe and Pepito Asturias "all the rights, interests, titles and participation" of the
defendants in certain buildings and properties described in the certificate, for a total
price of eight thousand and one hundred pesos. But on June 4, 1951 Olegario Lastrilla
filed in the case a motion, wherein he claimed to be the owner by purchase on
September 29, 1949, of all the "shares and interests" of defendant Fred Brown in the
FELCO, and requested "under the law of preference of credits" that the sheriff be
required to retain in his possession so much of the proceeds of the auction sale as
may be necessary "to pay his right." Over the plaintiffs’ objection the judge in his order
of June 13, 1951, granted Lastrilla’s motion by requiring the sheriff to retain 17 per cent
of the money "for delivery to the assignee, administrator or receiver" of the FELCO.
And on motion of Lastrilla, the court on August 14, 1951, modified its order of delivery
and merely declared that Lastrilla was entitled to 17 per cent of the properties sold,
saying in part:jgc:chanrobles.com.ph

". . . el Juzgado ha encontrado que no se han respetado los derechos del Sr. Lastrilla
en lo que se redere a su adquisicion de las acciones de C. Arnold Hall (Fred Brown)
en la Far Eastern Lumber & Commercial Co. porque las mismas han sido incluidas en
la subasta.

"Es verdad que las acciones adquiridas por el Sr. Lastrilla representan el 17 por ciento
del capital de la sociedad ’Far Eastern Lumber & Commercial Co., Inc., Et. Al.’ pero
esto no quiere decir que su valor no esta sujeto a las fluctuaciones del negocio donde
las invirtio.

"Se vendieron propiedades de la corporacion ’Far Eastern Lumber & Commercial Co.,
Inc.’, y de la venta solamente se obtuvo la cantidad de P8,100.

"En su virtud, se declara que el 17 por ciento de las propiedades vendidas en publica
subasta pertenece al Sr. O. Lastrilla y este tiene derecho a dicha porcion pero con la
obligacion de pagar el 17 por ciento de los gastos por la conservacion de dichas
propiedades por parte del Sheriff; . . ." (Annex K).

It is from this declaration and the subsequent orders to enforce it 1 that the petitioners
seek relief by certiorari, their position being that such orders were null and void for lack
of jurisdiction. At their request a writ of preliminary injunction was issued here.

The record is not very clear, but there are indications, and we shall assume for the
moment, that Fred Brown (like Arnold Hall and Jean Roxas) was a partner of the
FELCO, was defendant in Civil Case No. 193 as such partner, and that the properties
sold at auction actually belonged to the FELCO partnership and the partners. We shall
also assume that the sale made to Lastrilla on September 29, 1949, of all the shares of
Fred Brown in the FELCO was valid. (Remember that judgment in this case was
entered in the court of first instance a year before.)

The result then, is that on June 9, 1951 when the sale was effected of the properties of
FELCO to Roberto Dorfe and Pepito Asturias, Lastrilla was already a partner of
FELCO.

Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a
creditor of the FELCO, perhaps or maybe. But he was not. The partner of a partnership
is not a creditor of such partnership for the amount of his shares. That is too
elementary to need elaboration.

Lastrilla’s theory, and the lower court’s, seems to be: inasmuch as Lastrilla had
acquired the shares of Brown in September, 1949, i.e., before the auction sale, and he
was not a party to the litigation, such shares could not have been transferred to Dorfe
and Asturias.

Granting, arguendo that the auction sale did not include the interest or portion of the
FELCO properties corresponding to the shares of Lastrilla in the same partnership
(17%), the resulting situation would be - at most - that the purchasers Dorfe and
Asturias will have to recognize dominion of Lastrilla over 17 per cent of the properties
awarded to them., 2 So Lastrilla acquired no right to demand any part of the money
paid by Dorfe and Asturias to the sheriff for the benefit of FELCO and Tomassi, the
plaintiffs in that case, for the reason that, as he says, his shares (acquired from Brown)
could not have been and were not auctioned off to Dorfe and Asturias.

Supposing however that Lastrilla’s shares have been actually (but unlawfully) sold by
the sheriff (at the instance of plaintiffs) to Dorfe and Asturias, what is his remedy?
Section 15, Rule 39 furnishes the answer.

Precisely, respondents argue, Lastrilla vindicated his claim by proper action, i.e.,
motion in the case. We ruled once that "action" in this section means action as defined
in section 1, Rule 2. 3 Anyway his remedy is to claim "the property", not the proceeds
of the sale, which the sheriff is directed by section 14, Rule 39 to deliver unto the
judgment creditors.
In other words, the owner of property wrongfully sold may not voluntarily come to court,
and insist, "I approve the sale, therefore give me the proceeds because I am the
owner." The reason is that the sale was made for the judgment creditor (who paid for
the fees and notices), and not for anybody else.

On this score the respondent judge’s action on Lastrilla’s motion should be declared as
in excess of jurisdiction, which even amounted to want of jurisdiction, considering
specially that Dorfe and Asturias, and the defendants themselves, had undoubtedly the
right to be heard — but they were not notified. 4

Why was it necessary to hear them on the merits of Lastrilla’s motion?

Because Dorfe and Asturias might be unwilling to recognize the validity of Lastrilla’s
purchase, or, if valid, they may want him not to forsake the partnership that might have
some obligations in connection with the partnership properties. And what is more
important, if the motion is granted, when the time for redemption comes, Dorfe and
Asturias will receive from redemptioners seventeen per cent (17%) less than the
amount they had paid for the same properties.

The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla’s financial assets, might
also oppose the substitution by Lastrilla of Fred Brown, the judgment against them
being joint and several. They might entertain misgivings about Brown’s slipping out of
their common predicament through the disposal of his shares.

Lastly, all the defendants would have reasonable motives to object to the delivery of 17
per cent of the proceeds to Lastrilla, because it is so much money deducted, and for
which the plaintiffs might ask another levy on their other holdings or resources.
Supposing of course, there was no fraudulent collusion among them.

Now, these varied interests of necessity make Dorfe, Asturias and the defendants
indispensable parties to the motion of Lastrilla — granting it was a step allowable
under our regulations on execution. Yet these parties were not notified, and obviously
took no part in the proceedings on the motion.

"A valid judgment cannot be rendered where there is a want of necessary parties, and
a court cannot properly adjudicate matters involved in a suit when necessary and
indispensable parties to the proceedings are not before it." (49 C.J.S., 67.)

"Indispensable parties are those without whom the action cannot be finally determined.
In a case for recovery of real property, the defendant alleged in his answer that he was
occupying the property as a tenant of a third person. This third person is an
indispensable party, for, without him, any judgment which the plaintiff might obtain
against the tenant would have no effectiveness, for it would not be binding upon, and
cannot be executed against, the defendant’s landlord, against whom the plaintiff has to
file another action if he desires to recover the property effectively. In an action for
partition of property, each co-owner is an indispensable party, for without him no valid
judgment for partition may be rendered." (Moran, Comments, 1952 ed. Vol. I, p. 56.)
(Emphasis supplied.)

Wherefore, the orders of the court recognizing Lastrilla’s right and ordering payment to
him of a part of the proceeds were patently erroneous, because promulgated in excess
or outside of its jurisdiction. For this reason the respondents’ argument resting on
plaintiffs’ failure to appeal from the orders on time, although ordinarily decisive, carries
no persuasive force in this instance.

For as the former Chief Justice Dr. Moran has summarized in his Comments, 1952 ed.
Vol. II, p. 168 —

". . . And in those instances wherein the lower court has acted without jurisdiction over
the subject-matter, or where the order or judgment complained of is a patent nullity,
courts have gone even as far as to disregard completely the question of petitioner’s
fault, the reason being, undoubtedly, that acts performed with absolute want of
jurisdiction over the subject-matter are void ab initio and cannot be validated by
consent, express or implied, of the parties. Thus, the Supreme Court granted a petition
for certiorari and set aside an order reopening a cadastral case five years after the
judgment rendered therein had become final. In another case, the Court set aside an
order amending a judgment six years after such judgment acquired a definitive
character. And still in another case, an order granting a review of a decree of
registration issued more than a year ago had been declared null and void. In all these
cases the existence of the right to appeal has been disregarded. In a probate case, a
judgment according to its own recitals was rendered without any trial or hearing, and
the Supreme Court, in granting certiorari, said that the judgment was by its own recitals
a patent nullity, which should be set aside though an appeal was available but was not
availed of. . . ."cralaw virtua1aw library

Invoking our ruling in Melocotones v. Court of First Instance, (57 Phil., 144), wherein
we applied the theory of laches to petitioners’ 3-year delay in requesting certiorari, the
respondents point out that whereas the orders complained of herein were issued in
June 13, 1951 and August 14, 1951 this special civil action was not filed until August
1952. It should be observed that the order of June 13 was superseded by that of
August 14, 1951. The last order merely declared "que el 17 por ciento de las
propiedades vendidas en p�blica subasta pertenece al Sr. Lastrilla y este tiene
derecho a dicha porcion." This does not necessarily mean that 17 per cent of the
money had to be delivered to him. It could mean, as hereinbefore indicated, that the
purchasers of the property (Dorfe and Asturias) had to recognize Lastrilla’s ownership.
It was only on April 16, 1952 (Annex N) that the court issued an order directing the
sheriff "to turn over" to Lastrilla "17 per cent of the total proceeds of the auction sale."
There is the order that actually prejudiced the petitioners herein, and they fought it until
the last order of July 10, 1952 (Annex Q). Surely a month’s delay may not be regarded
as laches.

In view of the foregoing, it is our opinion, and we so hold, that all orders of the
respondent judge requiring delivery of 17 per cent of the proceeds of the auction sale
to respondent Olegario Lastrilla are null and void; and the costs of this suit shall be
taxed against the latter. The preliminary injunction heretofore issued is made
permanent. So ordered.
G.R. No. L-22493 July 31, 1975

ISLAND SALES, INC., plaintiff-appellee,

vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants.
BENJAMIN C. DACO, defendant-appellant.

CONCEPCION JR., J.:

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of
the Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the
dispositive portion of which reads:

WHEREFORE, the Court sentences defendant United Pioneer General

Construction Company to pay plaintiff the sum of P7,119.07 with interest at
the rate of 12% per annum until it is fully paid, plus attorney's fees which
the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and

Augusto Palisoc are sentenced to pay the plaintiff in this case with the
understanding that the judgment against these individual defendants shall
be enforced only if the defendant company has no more leviable properties
with which to satisfy the judgment against it. .

The individual defendants shall also pay the costs.

On April 22, 1961, the defendant company, a general partnership duly registered under
the laws of the Philippines, purchased from the plaintiff a motor vehicle on the
installment basis and for this purpose executed a promissory note for P9,440.00,
payable in twelve (12) equal monthly installments of P786.63, the first installment
payable on or before May 22, 1961 and the subsequent installments on the 22nd day
of every month thereafter, until fully paid, with the condition that failure to pay any of
said installments as they fall due would render the whole unpaid balance immediately
due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid balance amounting to P7,119.07. Benjamin C.
Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were
included as co-defendants in their capacity as general partners of the defendant
company.

Daniel A. Guizona failed to file an answer and was consequently declared in default.1
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the
defendant Romulo B. Lumauig is concerned.2

When the case was called for hearing, the defendants and their counsels failed to
appear notwithstanding the notices sent to them. Consequently, the trial court
authorized the plaintiff to present its evidence ex-parte3 , after which the trial court
rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision
claiming that since there are five (5) general partners, the joint and subsidiary liability
of each partner should not exceed one-fifth (1/5 ) of the obligations of the defendant
company. But the trial court denied the said motion notwithstanding the conformity of
the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth (1/5 ) of
the obligations of the defendant company.4 Hence, this appeal.

The only issue for resolution is whether or not the dismissal of the complaint to favor
one of the general partners of a partnership increases the joint and subsidiary liability
of each of the remaining partners for the obligations of the partnership.

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones, shall be liable pro rata with
all their property and after all the partnership assets have been exhausted,
for the contracts which may be entered into in the name and for the
account of the partnership, under its signature and by a person authorized
to act for the partnership. However, any partner may enter into a separate
obligation to perform a partnership contract.

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:

The partnership of Yulo and Palacios was engaged in the operation of a

sugar estate in Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership. Being a civil partnership, by
the express provisions of articles l698 and 1137 of the Civil Code, the
partners are not liable each for the whole debt of the partnership. The
liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for
only one-half of the debt. The fact that the other partner, Jaime Palacios,
had left the country cannot increase the liability of Pedro Yulo.

In the instant case, there were five (5) general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to
only one-fifth (1/5 ) of the obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general partner in the defendant
company. In so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without

pronouncement as to costs.

SO ORDERED.

G.R. No. 160346 August 25, 2009

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by

Mother and Attorney-in-Fact VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO,
EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE,
MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON,
FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA SAN AGUSTIN-
LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents.

NACHURA, J.:

For our resolution is a petition for review on certiorari assailing the April 23, 2003
Decision1 and October 8, 2003 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV
No. 59426. The appellate court, in the said decision and resolution, reversed and set
aside the January 14, 1998 Decision3 of the Regional Trial Court (RTC), which ruled in
favor of petitioners.

The dispute stemmed from the following facts.

During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire
a 246-square meter parcel of land situated in Barangay Anos, Los Baños, Laguna and
covered by Original Certificate of Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on
September 13, 1990 while Pedro San Agustin died on September 14, 1991. Both died
intestate, survived by their eight (8) children: respondents Eufemia, Raul, Ferdinand,
Zenaida, Milagros, Minerva, Isabelita and Virgilio.

Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of
Undivided Shares5 conveying in favor of petitioners (the Pahuds, for brevity) their
respective shares from the lot they inherited from their deceased parents for
₱525,000.00.6 Eufemia also signed the deed on behalf of her four (4) other co-heirs,
namely: Isabelita on the basis of a special power of attorney executed on September 28,
1991,7 and also for Milagros, Minerva, and Zenaida but without their apparent written
authority.8 The deed of sale was also not notarized.9

On July 21, 1992, the Pahuds paid ₱35,792.31 to the Los Baños Rural Bank where the
subject property was mortgaged.10 The bank issued a release of mortgage and turned
over the owner’s copy of the OCT to the Pahuds.11 Over the following months, the
Pahuds made more payments to Eufemia and her siblings totaling to ₱350,000.00.12
They agreed to use the remaining ₱87,500.0013 to defray the payment for taxes and the
expenses in transferring the title of the property.14 When Eufemia and her co-heirs
drafted an extra-judicial settlement of estate to facilitate the transfer of the title to the
Pahuds, Virgilio refused to sign it.15

On July 8, 1993, Virgilio’s co-heirs filed a complaint16 for judicial partition of the subject
property before the RTC of Calamba, Laguna. On November 28, 1994, in the course of
the proceedings for judicial partition, a Compromise Agreement17 was signed with seven
(7) of the co-heirs agreeing to sell their undivided shares to Virgilio for ₱700,000.00. The
compromise agreement was, however, not approved by the trial court because Atty.
Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the
agreement because he knew of the previous sale made to the Pahuds.18lawphil.net

On December 1, 1994, Eufemia acknowledged having received ₱700,000.00 from

Virgilio.19 Virgilio then sold the entire property to spouses Isagani Belarmino and Leticia
Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a
building on the subject property.

Alarmed and bewildered by the ongoing construction on the lot they purchased, the
Pahuds immediately confronted Eufemia who confirmed to them that Virgilio had sold
the property to the Belarminos.20 Aggrieved, the Pahuds filed a complaint in
intervention21 in the pending case for judicial partition.1avvphil

After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion
of the decision reads:

WHEREFORE, the foregoing considered, the Court orders:

1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15
by the plaintiffs as heirs of deceased Sps. Pedro San Agustin and Agatona Genil
in favor of the Intervenors-Third Party plaintiffs as valid and enforceable, but
obligating the Intervenors-Third Party plaintiffs to complete the payment of the
purchase price of ₱437,500.00 by paying the balance of ₱87,500.00 to defendant
Fe (sic) San Agustin Magsino. Upon receipt of the balance, the plaintiff shall
 formalize the sale of the 7/8 portion in favor of the Intervenor[s]-Third Party
plaintiffs;

2. declaring the document entitled "Salaysay sa Pagsang-ayon sa Bilihan" (Exh.

"2-a") signed by plaintiff Eufemia San Agustin attached to the unapproved
Compromise Agreement (Exh. "2") as not a valid sale in favor of defendant
Virgilio San Agustin;

3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin of the
property covered by OCT No. O (1655)-O-15 registered in the names of Spouses
Pedro San Agustin and Agatona Genil in favor of Third-party defendant Spouses
Isagani and Leticia Belarmino as not a valid sale and as inexistent;

4. declaring the defendant Virgilio San Agustin and the Third-Party defendants
spouses Isagani and Leticia Belarmino as in bad faith in buying the portion of the
property already sold by the plaintiffs in favor of the Intervenors-Third Party
Plaintiffs and the Third-Party Defendant Sps. Isagani and Leticia Belarmino in
constructing the two-[storey] building in (sic) the property subject of this case;
and

5. declaring the parties as not entitled to any damages, with the parties
shouldering their respective responsibilities regarding the payment of attorney[’]s
fees to their respective lawyers.

No pronouncement as to costs.

SO ORDERED.22

Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the
sale made by Eufemia for and on behalf of her other co-heirs to the Pahuds should have
been declared void and inexistent for want of a written authority from her co-heirs. The
CA yielded and set aside the findings of the trial court. In disposing the issue, the CA
ruled:

WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered
by the Regional Trial Court of Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-
C for Judicial Partition is hereby REVERSED and SET ASIDE, and a new one entered,
as follows:

(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is
now considered closed and terminated;
 (2) Ordering plaintiffs-appellees to return to intervenors-appellees the total
amount they received from the latter, plus an interest of 12% per annum from the
time the complaint [in] intervention was filed on April 12, 1995 until actual
payment of the same;

(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses,
Isagani and Leticia Belarmino[,] as valid and binding;

(4) Declaring appellants-spouses as buyers in good faith and for value and are
the owners of the subject property.

No pronouncement as to costs.

SO ORDERED.23

Petitioners now come to this Court raising the following arguments:

I. The Court of Appeals committed grave and reversible error when it did not
apply the second paragraph of Article 1317 of the New Civil Code insofar as
ratification is concerned to the sale of the 4/8 portion of the subject property
executed by respondents San Agustin in favor of petitioners;

II. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos are in good faith when they bought the subject
property from respondent Virgilio San Agustin despite the findings of fact by the
court a quo that they were in bad faith which clearly contravenes the presence of
long line of case laws upholding the task of giving utmost weight and value to the
factual findings of the trial court during appeals; [and]

III. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos have superior rights over the property in
question than petitioners despite the fact that the latter were prior in possession
thereby misapplying the provisions of Article 1544 of the New Civil Code.24

The focal issue to be resolved is the status of the sale of the subject property by Eufemia
and her co-heirs to the Pahuds. We find the transaction to be valid and enforceable.

Article 1874 of the Civil Code plainly provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.

Also, under Article 1878,25 a special power of attorney is necessary for an agent to enter
into a contract by which the ownership of an immovable property is transmitted or
acquired, either gratuitously or for a valuable consideration. Such stringent statutory
requirement has been explained in Cosmic Lumber Corporation v. Court of Appeals:26

[T]he authority of an agent to execute a contract [of] sale of real estate must be conferred
in writing and must give him specific authority, either to conduct the general business of
the principal or to execute a binding contract containing terms and conditions which are
in the contract he did execute. A special power of attorney is necessary to enter into any
contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent to sell real estate, a power
of attorney must so express the powers of the agent in clear and unmistakable language.
When there is any reasonable doubt that the language so used conveys such power, no
such construction shall be given the document.27

In several cases, we have repeatedly held that the absence of a written authority to sell
a piece of land is, ipso jure, void,28 precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of another.

Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by
Eufemia, Isabelita and her two brothers to the Pahuds sometime in 1992 should be valid
only with respect to the 4/8 portion of the subject property. The sale with respect to the
3/8 portion, representing the shares of Zenaida, Milagros, and Minerva, is void because
Eufemia could not dispose of the interest of her co-heirs in the said lot absent any written
authority from the latter, as explicitly required by law. This was, in fact, the ruling of the
CA.

Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the
land should have been deemed ratified when the three co-heirs, namely: Milagros,
Minerva, and Zenaida, executed their respective special power of attorneys29 authorizing
Eufemia to represent them in the sale of their shares in the subject property.30

While the sale with respect to the 3/8 portion is void by express provision of law and not
susceptible to ratification,31 we nevertheless uphold its validity on the basis of the
common law principle of estoppel.

Article 1431 of the Civil Code provides:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon

the person making it, and cannot be denied or disproved as against the person relying
thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite
special power of attorney to dispose of the 3/8 portion of the property. Initially, in their
answer to the complaint in intervention,32 Eufemia and her other co-heirs denied having
sold their shares to the Pahuds. During the pre-trial conference, however, they admitted
that they had indeed sold 7/8 of the property to the Pahuds sometime in 1992. 33 Thus,
the previous denial was superseded, if not accordingly amended, by their subsequent
admission.34 Moreover, in their Comment,35 the said co-heirs again admitted the sale
made to petitioners.36

Interestingly, in no instance did the three (3) heirs concerned assail the validity of the
transaction made by Eufemia to the Pahuds on the basis of want of written authority to
sell. They could have easily filed a case for annulment of the sale of their respective
shares against Eufemia and the Pahuds. Instead, they opted to remain silent and left the
task of raising the validity of the sale as an issue to their co-heir, Virgilio, who is not privy
to the said transaction. They cannot be allowed to rely on Eufemia, their attorney-in-fact,
to impugn the validity of the first transaction because to allow them to do so would be
tantamount to giving premium to their sister’s dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar
them from making a contrary claim.

It is a basic rule in the law of agency that a principal is subject to liability for loss caused
to another by the latter’s reliance upon a deceitful representation by an agent in the
course of his employment (1) if the representation is authorized; (2) if it is within the
implied authority of the agent to make for the principal; or (3) if it is apparently authorized,
regardless of whether the agent was authorized by him or not to make the
representation.37

By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to
believe that they have indeed clothed Eufemia with the authority to transact on their
behalf. Clearly, the three co-heirs are now estopped from impugning the validity of the
sale from assailing the authority of Eufemia to enter into such transaction.

Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void
because they no longer had any interest over the subject property which they could
alienate at the time of the second transaction.38 Nemo dat quod non habet. Virgilio,
however, could still alienate his 1/8 undivided share to the Belarminos.

The Belarminos, for their part, cannot argue that they purchased the property from
Virgilio in good faith. As a general rule, a purchaser of a real property is not required to
make any further inquiry beyond what the certificate of title indicates on its face. 39 But
the rule excludes those who purchase with knowledge of the defect in the title of the
vendor or of facts sufficient to induce a reasonable and prudent person to inquire into
the status of the property.40 Such purchaser cannot close his eyes to facts which should
put a reasonable man on guard, and later claim that he acted in good faith on the belief
that there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists, or his obvious neglect by closing his eyes to the possibility of the existence
of a defect in the vendor’s title, will not make him an innocent purchaser for value, if
afterwards it turns out that the title was, in fact, defective. In such a case, he is deemed
to have bought the property at his own risk, and any injury or prejudice occasioned by
such transaction must be borne by him.41

In the case at bar, the Belarminos were fully aware that the property was registered not
in the name of the immediate transferor, Virgilio, but remained in the name of Pedro San
Agustin and Agatona Genil.42 This fact alone is sufficient impetus to make further inquiry
and, thus, negate their claim that they are purchasers for value in good faith. 43 They
knew that the property was still subject of partition proceedings before the trial court, and
that the compromise agreement signed by the heirs was not approved by the RTC
following the opposition of the counsel for Eufemia and her six other co-heirs.44 The
Belarminos, being transferees pendente lite, are deemed buyers in mala fide, and they
stand exactly in the shoes of the transferor and are bound by any judgment or decree
which may be rendered for or against the transferor.45 Furthermore, had they verified the
status of the property by asking the neighboring residents, they would have been able
to talk to the Pahuds who occupy an adjoining business establishment46 and would have
known that a portion of the property had already been sold. All these existing and readily
verifiable facts are sufficient to suggest that the Belarminos knew that they were buying
the property at their own risk.

WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of Appeals
as well as its October 8, 2003 Resolution in CA-G.R. CV No. 59426, are REVERSED
and SET ASIDE. Accordingly, the January 14, 1998 Decision of Branch 92 of the
Regional Trial Court of Calamba, Laguna is REINSTATED with the MODIFICATION that
the sale made by respondent Virgilio San Agustin to respondent spouses Isagani
Belarmino and Leticia Ocampo is valid only with respect to the 1/8 portion of the subject
property. The trial court is ordered to proceed with the partition of the property with
dispatch.

SO ORDERED.
G.R. No. 136426 August 6, 1999

E. B. VILLAROSA & PARTNER CO., LTD., petitioner,

vs.
HON. HERMINIO I. BENITO, in his capacity as Presiding Judge, RTC, Branch 132,
Makati City
and IMPERIAL DEVELOPMENT CORPORATION, respondent.

GONZAGA-REYES, J.:

Before this Court is a petition for certiorari and prohibition with prayer for the issuance of
a temporary restraining order and/or writ of preliminary injunction seeking to annul and
set aside the Orders dated August 5, 1998 and November 20, 1998 of the public
respondent Judge Herminio I. Benito of the Regional Trial Court of Makati City, Branch
132 and praying that the public respondent court be ordered to desist from further
proceeding with Civil Case No. 98-824.

Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office
address at 102 Juan Luna St., Davao City and with branch offices at 2492 Bay View
Drive, Tambo, Parañaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro City.
Petitioner and private respondent executed a Deed of Sale with Development
Agreement wherein the former agreed to develop certain parcels of land located at Barrio
Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the
construction of low cost housing units. They further agreed that in case of litigation
regarding any dispute arising therefrom, the venue shall be in the proper courts of
Makati.

On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach of Contract
and Damages against petitioner, as defendant, before the Regional Trial Court of Makati
allegedly for failure of the latter to comply with its contractual obligation in that, other
than a few unfinished low cost houses, there were no substantial developments therein.1

Summons, together with the complaint, were served upon the defendant, through its
Branch Manager Engr. Wendell Sabulbero at the stated address at Kolambog, Lapasan,
Cagayan de Oro City2 but the Sheriff's Return of Service3 stated that the summons was
duly served "upon defendant E.B. Villarosa & Partner Co., Ltd. thru its Branch Manager
Engr. WENDELL SALBULBERO on May 5, 1998 at their new office Villa Gonzalo,
Nazareth, Cagayan de Oro City, and evidenced by the signature on the face of the
original copy of the summons.1âwphi1.nêt

On June 9, 1998, defendant filed a Special Appearance with Motion to Dismiss4 alleging
that on May 6, 1998, "summons intended for defendant" was served upon Engr. Wendell
Sabulbero, an employee of defendant at its branch office at Cagayan de Oro City.
Defendant prayed for the dismissal of the complaint on the ground of improper service
of summons and for lack of jurisdiction over the person of the defendant. Defendant
contends that the trial court did not acquire jurisdiction over its person since the
summons was improperly served upon its employee in its branch office at Cagayan de
Oro City who is not one of those persons named in Section 11, Rule 14 of the 1997
Rules of Civil Procedure upon whom service of summons may be made.

Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in Default5
alleging that defendant has failed to file an Answer despite its receipt allegedly on May
5, 1998 of the summons and the complaint, as shown in the Sheriffs Return.

On June 22, 1998, plaintiff filed an Opposition to Defendant's Motion to Dismiss6 alleging
that the records show that defendant, through its branch manager, Engr. Wendell
Sabulbero actually received the summons and the complaint on May 8, 1998 as
evidenced by the signature appearing on the copy of the summons and not on May 5,
1998 as stated in the Sheriffs Return nor on May 6, 1998 as stated in the motion to
dismiss; that defendant has transferred its office from Kolambog, Lapasan, Cagayan de
Oro to its new office address at Villa Gonzalo, Nazareth, Cagayan de Oro; and that the
purpose of the rule is to bring home to the corporation notice of the filing of the action.

On August 5, 1998, the trial court issued an Order7 denying defendant's Motion to
Dismiss as well as plaintiffs Motion to Declare Defendant in Default. Defendant was
given ten (10) days within which to file a responsive pleading. The trial court stated that
since the summons and copy of the complaint were in fact received by the corporation
through its branch manager Wendell Sabulbero, there was substantial compliance with
the rule on service of summons and consequently, it validly acquired jurisdiction over the
person of the defendant.

On August 19, 1998, defendant, by Special Appearance, filed a Motion for

Reconsideration8 alleging that Section 11, Rule 14 of the new Rules did not liberalize
but, on the contrary, restricted the service of summons on persons enumerated therein;
and that the new provision is very specific and clear in that the word "manager" was
changed to "general manager", "secretary" to "corporate secretary", and excluding
therefrom agent and director.

On August 27, 1998, plaintiff filed an Opposition to defendant's Motion for

Reconsideration9 alleging that defendant's branch manager "did bring home" to the
defendant-corporation the notice of the filing of the action and by virtue of which a motion
to dismiss was filed; and that it was one (1) month after receipt of the summons and the
complaint that defendant chose to file a motion to dismiss.

On September 4, 1998, defendant, by Special Appearance, filed a Reply10 contending

that the changes in the new rules are substantial and not just general semantics.
Defendant's Motion for Reconsideration was denied in the Order dated November 20,
1998.11

Hence, the present petition alleging that respondent court gravely abused its discretion
tantamount to lack or in excess of jurisdiction in denying petitioner's motions to dismiss
and for reconsideration, despite the fact that the trial court did not acquire jurisdiction
over the person of petitioner because the summons intended for it was improperly
served. Petitioner invokes Section 11 of Rule 14 of the 1997 Rules of Civil Procedure.

Private respondent filed its Comment to the petition citing the cases Kanlaon
Construction Enterprises Co., Inc. vs. NLRC12 wherein it was held that service upon a
construction project manager is valid and in Gesulgon vs. NLRC13 which held that a
corporation is bound by the service of summons upon its assistant manager.

The only issue for resolution is whether or not the trial court acquired jurisdiction over
the person of petitioner upon service of summons on its Branch Manager.

When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil
Procedure was already in force.14

Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:

When the defendant is a corporation, partnership or association organized under

the laws of the Philippines with a juridical personality, service may be made on
the president, managing partner, general manager, corporate secretary,
treasurer, or in-house counsel. (emphasis supplied).

This provision revised the former Section 13, Rule 14 of the Rules of Court which
provided that:

Sec. 13. Service upon private domestic corporation or partnership. — If the

defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent, or any of its directors. (emphasis supplied).

Petitioner contends that the enumeration of persons to whom summons may be served
is "restricted, limited and exclusive" following the rule on statutory construction
expressio unios est exclusio alterius and argues that if the Rules of Court Revision
Committee intended to liberalize the rule on service of summons, it could have easily
done so by clear and concise language.

We agree with petitioner.

Earlier cases have uphold service of summons upon a construction project manager15;
a corporation's assistant manager16; ordinary clerk of a corporation17; private secretary
of corporate executives18; retained counsel19; officials who had charge or control of the
operations of the corporation, like the assistant general manager20; or the corporation's
Chief Finance and Administrative Officer21. In these cases, these persons were
considered as "agent" within the contemplation of the old rule.22 Notably, under the
new Rules, service of summons upon an agent of the corporation is no longer
authorized.

The cases cited by private respondent are therefore not in point.

In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure,
summons on the respondent shall be served personally or by registered mail on the
party himself; if the party is represented by counsel or any other authorized
representative or agent, summons shall be served on such person. In said case,
summons was served on one Engr. Estacio who managed and supervised the
construction project in Iligan City (although the principal address of the corporation is in
Quezon City) and supervised the work of the employees. It was held that as manager,
he had sufficient responsibility and discretion to realize the importance of the legal
papers served on him and to relay the same to the president or other responsible
officer of petitioner such that summons for petitioner was validly served on him as
agent and authorized representative of petitioner. Also in the Gesulgon case cited by
private respondent, the summons was received by the clerk in the office of the
Assistant Manager (at principal office address) and under Section 13 of Rule 14 (old
rule), summons may be made upon the clerk who is regarded as agent within the
contemplation of the rule.

The designation of persons or officers who are authorized to accept summons for a
domestic corporation or partnership is now limited and more clearly specified in
Section 11, Rule 14 of the 1997 Rules of Civil Procedure. The rule now states "general
manager" instead of only "manager"; "corporate secretary" instead of "secretary"; and
"treasurer" instead of "cashier." The phrase "agent, or any of its directors" is
conspicuously deleted in the new rule.

The particular revision under Section 11 of Rule 14 was explained by retired Supreme
Court Justice Florenz Regalado, thus:23

. . . the then Sec. 13 of this Rule allowed service upon a defendant corporation to
"be made on the president, manager, secretary, cashier, agent or any of its
directors." The aforesaid terms were obviously ambiguous and susceptible of
broad and sometimes illogical interpretations, especially the word "agent" of the
corporation. The Filoil case, involving the litigation lawyer of the corporation who
precisely appeared to challenge the validity of service of summons but whose
 very appearance for that purpose was seized upon to validate the defective
service, is an illustration of the need for this revised section with limited scope
and specific terminology. Thus the absurd result in the Filoil case necessitated
the amendment permitting service only on the in-house counsel of the
corporation who is in effect an employee of the corporation, as distinguished from
an independent practitioner. (emphasis supplied).

Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court Revision
Committee, stated that "(T)he rule must be strictly observed. Service must be made to
one named in (the) statute . . . .24

It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure,
strict compliance with the rules has been enjoined. In the case of Delta Motor Sales
Corporation vs. Mangosing,25 the Court held:

A strict compliance with the mode of service is necessary to confer jurisdiction of

the court over a corporation. The officer upon whom service is made must be one
who is named in the statute; otherwise the service is insufficient. . . .

The purpose is to render it reasonably certain that the corporation will receive
prompt and proper notice in an action against it or to insure that the summons be
served on a representative so integrated with the corporation that such person
will know what to do with the legal papers served on him. In other words, "to
bring home to the corporation notice of the filing of the action." . . . .

The liberal construction rule cannot be invoked and utilized as a substitute for the
plain legal requirements as to the manner in which summons should be served
on a domestic corporation. . . . . (emphasis supplied).

Service of summons upon persons other than those mentioned in Section 13 of Rule
14 (old rule) has been held as improper.26 Even under the old rule, service upon a
general manager of a firm's branch office has been held as improper as summons
should have been served at the firm's principal office. In First Integrated Bonding & Inc.
Co., Inc. vs. Dizon,27 it was held that the service of summons on the general manager
of the insurance firm's Cebu branch was improper; default order could have been
obviated had the summons been served at the firm's principal office.

And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista Ricafort, et
al.28 the Court succinctly clarified that, for the guidance of the Bench and Bar, "strictest"
compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procedure (on
Priorities in modes of service and filing) is mandated and the Court cannot rule
otherwise, lest we allow circumvention of the innovation by the 1997 Rules in order to
obviate delay in the administration of justice.
Accordingly, we rule that the service of summons upon the branch manager of
petitioner at its branch office at Cagayan de Oro, instead of upon the general manager
at its principal office at Davao City is improper. Consequently, the trial court did not
acquire jurisdiction over the person of the petitioner.

The fact that defendant filed a belated motion to dismiss did not operate to confer
jurisdiction upon its person. There is no question that the defendant's voluntary
appearance in the action is equivalent to service of summons.29 Before, the rule was
that a party may challenge the jurisdiction of the court over his person by making a
special appearance through a motion to dismiss and if in the same motion, the movant
raised other grounds or invoked affirmative relief which necessarily involves the
exercise of the jurisdiction of the court.30 This doctrine has been abandoned in the
case of La Naval Drug Corporation vs. Court of Appeals, et al.,31 which became the
basis of the adoption of a new provision in the former Section 23, which is now Section
20 of Rule 14 of the 1997 Rules. Section 20 now provides that "the inclusion in a
motion to dismiss of other grounds aside from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary appearance." The emplacement of this rule
clearly underscores the purpose to enforce strict enforcement of the rules on
summons. Accordingly, the filing of a motion to dismiss, whether or not belatedly filed
by the defendant, his authorized agent or attorney, precisely objecting to the
jurisdiction of the court over the person of the defendant can by no means be deemed
a submission to the jurisdiction of the court. There being no proper service of
summons, the trial court cannot take cognizance of a case for lack of jurisdiction over
the person of the defendant. Any proceeding undertaken by the trial court will
consequently be null and void.32

WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the public
respondent trial court are ANNULLED and SET ASIDE. The public respondent
Regional Trial Court of Makati, Branch 132 is declared without jurisdiction to take
cognizance of Civil Case No. 98-824, and all its orders and issuances in connection
therewith are hereby ANNULLED and SET ASIDE.1âwphi1.nêt

SO ORDERED.
G.R. No. L-39780 November 11, 1985

ELMO MUÑASQUE, petitioner,

vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY
and RAMON PONS, respondents.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of
the Court of Appeals affirming the existence of a partnership between petitioner and
one of the respondents, Celestino Galan and holding both of them liable to the two
intervenors which extended credit to their partnership. The petitioner wants to be
excluded from the liabilities of the partnership.

Petitioner Elmo Muñasque filed a complaint for payment of sum of money and
damages against respondents Celestino Galan, Tropical Commercial, Co., Inc.
(Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons for remodelling a portion
of its building without exchanging or expecting any consideration from Galan although
the latter was casually named as partner in the contract; that by virtue of his having
introduced the petitioner to the employing company (Tropical). Galan would receive
some kind of compensation in the form of some percentages or commission; that
Tropical, under the terms of the contract, agreed to give petitioner the amount of
P7,000.00 soon after the construction began and thereafter, the amount of P6,000.00
every fifteen (15) days during the construction to make a total sum of P25,000.00; that
on January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the
plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be deposited in a
joint account; that on January 26, 1967 when the second check for P6,000.00 was due,
petitioner refused to indorse said cheek presented to him by Galan but through later
manipulations, respondent Pons succeeded in changing the payee's name from Elmo
Muñasque to Galan and Associates, thus enabling Galan to cash the same at the
Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and subjecting him to
demands of creditors to pay' for construction materials, the payment of which should
have been made from the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16, 1967 deadline;that
because of the unauthorized disbursement by respondents Tropical and Pons of the
sum of P13,000.00 to Galan petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between the petitioner and
respondent company.
The respondents answered the complaint by denying some and admitting some of the
material averments and setting up counterclaims.

During the pre-trial conference, the petitioners and respondents agreed that the issues
to be resolved are:

(1) Whether or not there existed a partners between Celestino Galan and
Elmo Muñasque; and

(2) Whether or not there existed a justifiable cause on the part of

respondent Tropical to disburse money to respondent Galan.

The business firms Cebu Southern Hardware Company and Blue Diamond Glass
Palace were allowed to intervene, both having legal interest in the matter in litigation.

After trial, the court rendered judgment, the dispositive portion of which states:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and
severally the intervenors Cebu and Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
respectively;

(2) absolving the defendants Tropical Commercial Company and Ramon

Pons from any liability,

No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed
motions for reconsideration.

On January 15, 197 1, the trial court issued 'another order amending its judgment to
make it read as follows:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and
severally the intervenors Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
respectively,
 (2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern
Hardware Company and Tan Siu jointly and severally interest at 12% per
annum of the sum of P6,229.34 until the amount is fully paid;

(3) ordering plaintiff and defendant Galan to pay P500.00 representing

attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company:

(4) absolving the defendants Tropical Commercial Company and Ramon

Pons from any liability,

No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole
modification that the liability imposed in the dispositive part of the decision on the credit
of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from
"jointly and severally" to "jointly."

Not satisfied, Mr. Muñasque filed this petition.

The present controversy began when petitioner Muñasque in behalf of the partnership
of "Galan and Muñasque" as Contractor entered into a written contract with respondent
Tropical for remodelling the respondent's Cebu branch building. A total amount of
P25,000.00 was to be paid under the contract for the entire services of the Contractor.
The terms of payment were as follows: thirty percent (30%) of the whole amount upon
the signing of the contract and the balance thereof divided into three equal installments
at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

The first payment made by respondent Tropical was in the form of a check for
P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the check in
favor of respondent Galan to enable the latter to deposit it in the bank and pay for the
materials and labor used in the project.

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use
so that when the second check in the amount of P6,000.00 came and Galan asked the
petitioner to indorse it again, the petitioner refused.

The check was withheld from the petitioner. Since Galan informed the Cebu branch of
Tropical that there was a"misunderstanding" between him and petitioner, respondent
Tropical changed the name of the payee in the second check from Muñasque to
"Galan and Associates" which was the duly registered name of the partnership
between Galan and petitioner and under which name a permit to do construction
business was issued by the mayor of Cebu City. This enabled Galan to encash the
second check.

Meanwhile, as alleged by the petitioner, the construction continued through his sole
efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and
although the expenses had reached the amount of P29,000.00 because of the failure
of Galan to pay what was partly due the laborers and partly due for the materials, the
construction work was finished ahead of schedule with the total expenditure reaching
P34,000.00.

The two remaining checks, each in the amount of P6,000.00,were subsequently given
to the petitioner alone with the last check being given pursuant to a court order.

As stated earlier, the petitioner filed a complaint for payment of sum of money and
damages against the respondents,seeking to recover the following: the amounts
covered by the first and second checks which fell into the hands of respondent Galan,
the additional expenses that the petitioner incurred in the construction, moral and
exemplary damages, and attorney's fees.

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu
Manager, Pons, from any liability but they also held the petitioner together with
respondent Galan, hable to the intervenors Cebu Southern Hardware Company and
Blue Diamond Glass Palace for the credit which the intervenors extended to the
partnership of petitioner and Galan

In this petition the legal questions raised by the petitioner are as follows: (1) Whether
or not the appellate court erred in holding that a partnership existed between petitioner
and respondent Galan. (2) Assuming that there was such a partnership, whether or not
the court erred in not finding Galan guilty of malversing the P13,000.00 covered by the
first and second checks and therefore, accountable to the petitioner for the said
amount; and (3) Whether or not the court committed grave abuse of discretion in
holding that the payment made by Tropical through its manager Pons to Galan was
"good payment, "

Petitioner contends that the appellate court erred in holding that he and respondent
Galan were partners, the truth being that Galan was a sham and a perfidious partner
who misappropriated the amount of P13,000.00 due to the petitioner.Petitioner also
contends that the appellate court committed grave abuse of discretion in holding that
the payment made by Tropical to Galan was "good" payment when the same gave
occasion for the latter to misappropriate the proceeds of such payment.

The contentions are without merit.

The records will show that the petitioner entered into a con-tract with Tropical for the
renovation of the latter's building on behalf of the partnership of "Galan and
Muñasque." This is readily seen in the first paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan
and Muñasque hereinafter called the Contractor, and Tropical Commercial
Co., Inc., hereinafter called the owner do hereby for and in consideration
agree on the following: ... .

There is nothing in the records to indicate that the partner-ship organized by the two
men was not a genuine one. If there was a falling out or misunderstanding between the
partners, such does not convert the partnership into a sham organization.

Likewise, when Muñasque received the first payment of Tropical in the amount of
P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume that the petitioner and
Galan were true partners. If they were not partners as petitioner claims, then he has
only himself to blame for making the relationship appear otherwise, not only to Tropical
but to their other creditors as well. The payments made to the partnership were,
therefore, valid payments.

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Although it may be presumed that Margarita G. Saldajeno had acted in

good faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences.

No error was committed by the appellate court in holding that the payment made by
Tropical to Galan was a good payment which binds both Galan and the petitioner.
Since the two were partners when the debts were incurred, they, are also both liable to
third persons who extended credit to their partnership. In the case of George Litton v.
Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:

There is a general presumption that each individual partner is an

authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions. (Mills vs. Riggle,112 Pan, 617).

The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority. (Le Roy vs.
Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave abuse of discretion
in not holding Galan liable for the amounts which he "malversed" to the prejudice of the
petitioner. He adds that although this was not one of the issues agreed upon by the
parties during the pretrial, he, nevertheless, alleged the same in his amended
complaint which was, duly admitted by the court.

When the petitioner amended his complaint, it was only for the purpose of impleading
Ramon Pons in his personal capacity. Although the petitioner made allegations as to
the alleged malversations of Galan, these were the same allegations in his original
complaint. The malversation by one partner was not an issue actually raised in the
amended complaint but the alleged connivance of Pons with Galan as a means to
serve the latter's personal purposes.

The petitioner, therefore, should be bound by the delimitation of the issues during the
pre-trial because he himself agreed to the same. In Permanent Concrete Products, Inc.
v. Teodoro, (26 SCRA 336), we ruled:

xxx xxx xxx

... The appellant is bound by the delimitation of the issues contained in the
trial court's order issued on the very day the pre-trial conference was held.
Such an order controls the subsequent course of the action, unless
modified before trial to prevent manifest injustice.In the case at bar,
modification of the pre-trial order was never sought at the instance of any
party.

Petitioner could have asked at least for a modification of the issues if he really wanted
to include the determination of Galan's personal liability to their partnership but he
chose not to do so, as he vehemently denied the existence of the partnership. At any
rate, the issue raised in this petition is the contention of Muñasque that the amounts
payable to the intervenors should be shouldered exclusively by Galan. We note that
the petitioner is not solely burdened by the obligations of their illstarred partnership.
The records show that there is an existing judgment against respondent Galan, holding
him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended
credit to the partnership aside from the P2, 000. 00 he already paid to Universal
Lumber.

We, however, take exception to the ruling of the appellate court that the trial court's
ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the liability of partners under the law
to third persons for contracts executed inconnection with partnership business is only
pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including
industrial ones, shall be liable prorate with all their property and after all the partnership
assets have been exhausted, for the contracts which may be entered into the name
and fm the account cd the partnership, under its signature and by a person authorized
to act for the partner-ship. ...". this provision should be construed together with Article
1824 which provides that: "All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823." In short, while
the liability of the partners are merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third person falls under
Articles 1822 or 1823.

Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partner-ship or with the authority
of his co-partners, loss or injury is caused to any person, not being a
partner in the partnership or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to act.

Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or
property of a third person and t he money or property so received is
misapplied by any partner while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon
the authority of a partner, whether such authority is real or apparent. That is why under
Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the
legal entity which is the partnership, are solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error can be
imputed against it for making payments to "Galan and Associates" and delivering the
same to Galan because as far as it was concerned, Galan was a true partner with real
authority to transact on behalf of the partnership with which it was dealing. This is even
more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace
who supplied materials on credit to the partnership. Thus, it is but fair that the
consequences of any wrongful act committed by any of the partners therein should be
answered solidarily by all the partners and the partnership as a whole
However. as between the partners Muñasque and Galan,justice also dictates that
Muñasque be reimbursed by Galan for the payments made by the former representing
the liability of their partnership to herein intervenors, as it was satisfactorily established
that Galan acted in bad faith in his dealings with Muñasque as a partner.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the

MODIFICATION that the liability of petitioner and respondent Galan to intervenors Blue
Diamond Glass and Cebu Southern Hardware is declared to be joint and solidary.
Petitioner may recover from respondent Galan any amount that he pays, in his
capacity as a partner, to the above intervenors,

SO ORDERED.

G.R. No. 170139 August 5, 2014

SAMEER OVERSEAS PLACEMENT AGENCY, INC., Petitioner,

vs.
JOY C. CABILES, Respondent.

LEONEN, J.:

This case involves an overseas Filipino worker with shattered dreams. It is our duty,
given the facts and the law, to approximate justice for her.

We are asked to decide a petition for review1 on certiorari assailing the Court of
Appeals’ decision2 dated June 27, 2005. This decision partially affirmed the National
Labor RelationsCommission’s resolution dated March 31, 2004,3 declaring
respondent’s dismissal illegal, directing petitioner to pay respondent’s three-month
salary equivalent to New Taiwan Dollar (NT$) 46,080.00, and ordering it to reimburse
the NT$3,000.00 withheld from respondent, and pay her NT$300.00 attorney’s fees. 4

Petitioner, Sameer Overseas Placement Agency, Inc., is a recruitment and placement

agency.5 Responding to an ad it published, respondent, Joy C. Cabiles, submitted her
application for a quality control job in Taiwan.6

Joy’s application was accepted.7 Joy was later asked to sign a oneyear employment
contract for a monthly salary of NT$15,360.00.8 She alleged that Sameer Overseas
Agency required her to pay a placement fee of ₱70,000.00 when she signed the
employment contract.9
Joy was deployed to work for TaiwanWacoal, Co. Ltd. (Wacoal) on June 26, 1997. 10
She alleged that in her employment contract, she agreed to work as quality control for
one year.11 In Taiwan, she was asked to work as a cutter.12

Sameer Overseas Placement Agencyclaims that on July 14, 1997, a certain Mr.
Huwang from Wacoal informedJoy, without prior notice, that she was terminated and
that "she should immediately report to their office to get her salary and passport."13 She
was asked to "prepare for immediate repatriation."14

Joy claims that she was told that from June 26 to July 14, 1997, she only earned a total
of NT$9,000.15 According to her, Wacoal deducted NT$3,000 to cover her plane ticket
to Manila.16

On October 15, 1997, Joy filed a complaint17 with the National Labor Relations
Commission against petitioner and Wacoal. She claimed that she was illegally
dismissed.18 She asked for the return of her placement fee, the withheld amount for
repatriation costs, payment of her salary for 23 months as well as moral and exemplary
damages.19 She identified Wacoal as Sameer Overseas Placement Agency’s foreign
principal.20

Sameer Overseas Placement Agency alleged that respondent's termination was due to
her inefficiency, negligence in her duties, and her "failure to comply with the work
requirements [of] her foreign [employer]."21 The agency also claimed that it did not ask
for a placement fee of ₱70,000.00.22 As evidence, it showedOfficial Receipt No. 14860
dated June 10, 1997, bearing the amount of ₱20,360.00.23 Petitioner added that
Wacoal's accreditation with petitioner had already been transferred to the Pacific
Manpower & Management Services, Inc. (Pacific) as of August 6, 1997.24 Thus,
petitioner asserts that it was already substituted by Pacific Manpower.25

Pacific Manpower moved for the dismissal of petitioner’s claims against it.26 It alleged
that there was no employer-employee relationship between them.27 Therefore, the
claims against it were outside the jurisdiction of the Labor Arbiter.28 Pacific Manpower
argued that the employment contract should first be presented so that the employer’s
contractual obligations might be identified.29 It further denied that it assumed liability for
petitioner’s illegal acts.30

On July 29, 1998, the Labor Arbiter dismissed Joy’s complaint.31 Acting Executive
Labor Arbiter Pedro C.Ramos ruled that her complaint was based on
mereallegations.32 The Labor Arbiter found that there was no excess payment of
placement fees, based on the official receipt presented by petitioner.33 The Labor
Arbiter found unnecessary a discussion on petitioner’s transfer of obligations to
Pacific34 and considered the matter immaterial in view of the dismissal of respondent’s
complaint.35
Joy appealed36 to the National Labor Relations Commission.

In a resolution37 dated March 31, 2004, the National Labor Relations Commission
declared that Joy was illegally dismissed.38 It reiterated the doctrine that the burden of
proof to show that the dismissal was based on a just or valid cause belongs to the
employer.39 It found that Sameer Overseas Placement Agency failed to prove that
there were just causes for termination.40 There was no sufficient proofto show that
respondent was inefficient in her work and that she failed to comply with company
requirements.41 Furthermore, procedural dueprocess was not observed in terminating
respondent.42

The National Labor Relations Commission did not rule on the issue of reimbursement
of placement fees for lack of jurisdiction.43 It refused to entertain the issue of the
alleged transfer of obligations to Pacific.44 It did not acquire jurisdiction over that issue
because Sameer Overseas Placement Agency failed to appeal the Labor Arbiter’s
decision not to rule on the matter.45

The National Labor Relations Commission awarded respondent only three (3) months
worth of salaryin the amount of NT$46,080, the reimbursement of the NT$3,000
withheld from her, and attorney’s fees of NT$300.46

The Commission denied the agency’s motion for reconsideration47 dated May 12, 2004
through a resolution48 dated July 2, 2004.

Aggrieved by the ruling, Sameer Overseas Placement Agency caused the filing of a
petition49 for certiorari with the Court of Appeals assailing the National Labor Relations
Commission’s resolutions dated March 31, 2004 and July 2, 2004.

The Court of Appeals50 affirmed the decision of the National Labor Relations
Commission with respect to the finding of illegal dismissal, Joy’s entitlement to the
equivalent of three months worth of salary, reimbursement of withheld repatriation
expense, and attorney’s fees.51 The Court of Appeals remanded the case to the
National Labor Relations Commission to address the validity of petitioner's allegations
against Pacific.52 The Court of Appeals held, thus: Although the public respondent
found the dismissal of the complainant-respondent illegal, we should point out that the
NLRC merely awarded her three (3) months backwages or the amount of
NT$46,080.00, which was based upon its finding that she was dismissed without due
process, a finding that we uphold, given petitioner’s lack of worthwhile discussion upon
the same in the proceedings below or before us. Likewise we sustain NLRC’s finding in
regard to the reimbursement of her fare, which is squarely based on the law; as well as
the award of attorney’s fees.
But we do find it necessary to remand the instant case to the public respondent for
further proceedings, for the purpose of addressing the validity or propriety of
petitioner’s third-party complaint against the transferee agent or the Pacific Manpower
& Management Services, Inc. and Lea G. Manabat. We should emphasize that as far
as the decision of the NLRC on the claims of Joy Cabiles, is concerned, the same is
hereby affirmed with finality, and we hold petitioner liable thereon, but without prejudice
to further hearings on its third party complaint against Pacific for reimbursement.

WHEREFORE, premises considered, the assailed Resolutions are hereby partly

AFFIRMED in accordance with the foregoing discussion, but subject to the caveat
embodied inthe last sentence. No costs.

SO ORDERED.53

Dissatisfied, Sameer Overseas Placement Agency filed this petition. 54

We are asked to determine whether the Court of Appeals erred when it affirmed the
ruling of the National Labor Relations Commission finding respondent illegally
dismissed and awarding her three months’ worth of salary, the reimbursement of the
cost ofher repatriation, and attorney’s fees despite the alleged existence of just causes
of termination.

Petitioner reiterates that there was just cause for termination because there was a
finding of Wacoal that respondent was inefficient in her work.55

Therefore, it claims that respondent’s dismissal was valid.56

Petitioner also reiterates that since Wacoal’s accreditation was validly transferred to
Pacific at the time respondent filed her complaint, it should be Pacific that should now
assume responsibility for Wacoal’s contractual obligations to the workers originally
recruited by petitioner.57

Sameer Overseas Placement Agency’spetition is without merit. We find for respondent.

Sameer Overseas Placement Agency failed to show that there was just cause for
causing Joy’s dismissal. The employer, Wacoal, also failed to accord her due process
of law.

Indeed, employers have the prerogative to impose productivity and quality standards at
work.58 They may also impose reasonable rules to ensure that the employees comply
with these standards.59 Failure to comply may be a just cause for their dismissal.60
Certainly, employers cannot be compelled to retain the services of anemployee who is
guilty of acts that are inimical to the interest of the employer.61 While the law
acknowledges the plight and vulnerability of workers, it does not "authorize the
oppression or self-destruction of the employer."62 Management prerogative is
recognized in law and in our jurisprudence.

This prerogative, however, should not be abused. It is "tempered with the employee’s
right to security of tenure."63 Workers are entitled to substantive and procedural due
process before termination. They may not be removed from employment without a
validor just cause as determined by law and without going through the proper
procedure.

Security of tenure for labor is guaranteed by our Constitution.64

Employees are not stripped of their security of tenure when they move to work in a
different jurisdiction. With respect to the rights of overseas Filipino workers, we follow
the principle of lex loci contractus.Thus, in Triple Eight Integrated Services, Inc. v.
NLRC,65 this court noted:

Petitioner likewise attempts to sidestep the medical certificate requirement by

contending that since Osdana was working in Saudi Arabia, her employment was
subject to the laws of the host country. Apparently, petitioner hopes tomake it appear
that the labor laws of Saudi Arabia do not require any certification by a competent
public health authority in the dismissal of employees due to illness.

Again, petitioner’s argument is without merit.

First, established is the rule that lex loci contractus (the law of the place where the
contract is made) governs in this jurisdiction. There is no question that the contract of
employment in this case was perfected here in the Philippines. Therefore, the Labor
Code, its implementing rules and regulations, and other laws affecting labor apply in
this case.Furthermore, settled is the rule that the courts of the forum will not enforce
any foreign claim obnoxious to the forum’s public policy. Herein the Philippines,
employment agreements are more than contractual in nature. The Constitution itself, in
Article XIII, Section 3, guarantees the special protection of workers, to wit:

The State shall afford full protection to labor, local and overseas, organized and
unorganized, and promote full employment and equality of employment opportunities
for all.

It shall guarantee the rights of all workers to selforganization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in
accordance with law. They shall be entitled to security of tenure, humane conditions of
work, and a living wage. Theyshall also participate in policy and decision-making
processes affecting their rights and benefits as may be provided by law.

....

This public policy should be borne in mind in this case because to allow foreign
employers to determine for and by themselves whether an overseas contract worker
may be dismissed on the ground of illness would encourage illegal or arbitrary
pretermination of employment contracts.66 (Emphasis supplied, citation omitted)

Even with respect to fundamental procedural rights, this court emphasized in PCL
Shipping Philippines, Inc. v. NLRC,67 to wit:

Petitioners admit that they did notinform private respondent in writing of the charges
against him and that they failed to conduct a formal investigation to give him
opportunity to air his side. However, petitioners contend that the twin requirements
ofnotice and hearing applies strictly only when the employment is within the Philippines
and that these need not be strictly observed in cases of international maritime or
overseas employment.

The Court does not agree. The provisions of the Constitution as well as the Labor
Code which afford protection to labor apply to Filipino employees whether working
within the Philippines or abroad. Moreover, the principle of lex loci contractus (the law
of the place where the contract is made) governs in this jurisdiction. In the present
case, it is not disputed that the Contract of Employment entered into by and between
petitioners and private respondent was executed here in the Philippines with the
approval of the Philippine Overseas Employment Administration (POEA). Hence, the
Labor Code together with its implementing rules and regulations and other laws
affecting labor apply in this case.68 (Emphasis supplied, citations omitted)

By our laws, overseas Filipino workers (OFWs) may only be terminated for a just or
authorized cause and after compliance with procedural due process requirements.

Article 282 of the Labor Code enumerates the just causes of termination by the
employer. Thus:

Art. 282. Termination by employer. An employer may terminate an employment for any
of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful

orders of his employer or representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

 (c) Fraud or willful breach by the employee of the trust reposed in him by his
employer or duly authorized representative;

(d) Commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorized
representatives; and

(e) Other causes analogous to the foregoing.

Petitioner’s allegation that respondentwas inefficient in her work and negligent in her
duties69 may, therefore, constitute a just cause for termination under Article 282(b), but
only if petitioner was able to prove it.

The burden of proving that there is just cause for termination is on the employer. "The
employer must affirmatively show rationally adequate evidence that the dismissal was
for a justifiable cause."70 Failure to show that there was valid or just cause for
termination would necessarily mean that the dismissal was illegal.71

To show that dismissal resulting from inefficiency in work is valid, it must be shown
that: 1) the employer has set standards of conduct and workmanship against which the
employee will be judged; 2) the standards of conduct and workmanship must have
been communicated tothe employee; and 3) the communication was made at a
reasonable time prior to the employee’s performance assessment.

This is similar to the law and jurisprudence on probationary employees, which allow
termination ofthe employee only when there is "just cause or when [the probationary
employee] fails to qualify as a regular employee in accordance with reasonable
standards made known by the employer to the employee at the time of his [or her]
engagement."72

However, we do not see why the application of that ruling should be limited to
probationary employment. That rule is basic to the idea of security of tenure and due
process, which are guaranteed to all employees, whether their employment is
probationary or regular.

The pre-determined standards that the employer sets are the bases for determining the
probationary employee’s fitness, propriety, efficiency, and qualifications as a regular
employee. Due process requires that the probationary employee be informed of such
standards at the time of his or her engagement so he or she can adjusthis or her
character or workmanship accordingly. Proper adjustment to fit the standards upon
which the employee’s qualifications will be evaluated will increase one’s chances of
being positively assessed for regularization by his or her employer.
Assessing an employee’s work performance does not stop after regularization. The
employer, on a regular basis, determines if an employee is still qualified and efficient,
based on work standards. Based on that determination, and after complying with the
due process requirements of notice and hearing, the employer may exercise its
management prerogative of terminating the employee found unqualified.

The regular employee must constantlyattempt to prove to his or her employer that he
or she meets all the standards for employment. This time, however, the standards to
be met are set for the purpose of retaining employment or promotion. The employee
cannot be expected to meet any standard of character or workmanship if such
standards were not communicated to him or her. Courts should remain vigilant on
allegations of the employer’s failure to communicatework standards that would govern
one’s employment "if [these are] to discharge in good faith [their] duty to adjudicate." 73

In this case, petitioner merely alleged that respondent failed to comply with her foreign
employer’s work requirements and was inefficient in her work.74 No evidence was
shown to support such allegations. Petitioner did not even bother to specify what
requirements were not met, what efficiency standards were violated, or what particular
acts of respondent constituted inefficiency.

There was also no showing that respondent was sufficiently informed of the standards
against which her work efficiency and performance were judged. The parties’ conflict
as to the position held by respondent showed that even the matter as basic as the job
title was not clear.

The bare allegations of petitioner are not sufficient to support a claim that there is just
cause for termination. There is no proof that respondent was legally terminated.

Petitioner failed to comply with

the due process requirements

Respondent’s dismissal less than one year from hiring and her repatriation on the
same day show not onlyfailure on the partof petitioner to comply with the requirement
of the existence of just cause for termination. They patently show that the
employersdid not comply with the due process requirement.

A valid dismissal requires both a valid cause and adherence to the valid procedure of
dismissal.75 The employer is required to give the charged employee at least two written
notices before termination.76 One of the written notices must inform the employee of
the particular acts that may cause his or her dismissal.77 The other notice must
"[inform] the employee of the employer’s decision."78 Aside from the notice
requirement, the employee must also be given "an opportunity to be heard."79
Petitioner failed to comply with the twin notices and hearing requirements. Respondent
started working on June 26, 1997. She was told that she was terminated on July 14,
1997 effective on the same day and barely a month from her first workday. She was
also repatriated on the same day that she was informed of her termination. The
abruptness of the termination negated any finding that she was properly notified and
given the opportunity to be heard. Her constitutional right to due process of law was
violated.

II

Respondent Joy Cabiles, having been illegally dismissed, is entitled to her salary for
the unexpired portion ofthe employment contract that was violated together with
attorney’s fees and reimbursement of amounts withheld from her salary.

Section 10 of Republic Act No. 8042,otherwise known as the Migrant Workers and
Overseas Filipinos Act of1995, states thatoverseas workers who were terminated
without just, valid, or authorized cause "shall be entitled to the full reimbursement of his
placement fee with interest of twelve (12%) per annum, plus his salaries for the
unexpired portion of his employment contract or for three (3) months for every year of
the unexpired term, whichever is less."

Sec. 10. MONEY CLAIMS. – Notwithstanding any provision of law to the contrary, the
Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the
original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days
after filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment including claims for actual, moral, exemplary and other forms of damages.

The liability of the principal/employer and the recruitment/placement agency for any
and all claims under this section shall be joint and several. This provisions [sic] shall be
incorporated in the contract for overseas employment and shall be a condition
precedent for its approval. The performance bond to be filed by the
recruitment/placementagency, as provided by law, shall be answerable for all money
claims or damages that may be awarded to the workers. If the recruitment/placement
agency is a juridical being, the corporate officers and directors and partners as the
case may be, shall themselves be jointly and solidarily liable with the corporation
orpartnership for the aforesaid claims and damages.

Such liabilities shall continue during the entire period or duration of the employment
contract and shall not be affected by any substitution, amendment or modification
made locally or in a foreign country of the said contract.
Any compromise/amicable settlement or voluntary agreement on money claims
inclusive of damages under this section shall be paid within four (4) months from the
approval of the settlement by the appropriate authority.

In case of termination of overseas employment without just, valid or authorized cause

as defined by law or contract, the workers shall be entitled to the full reimbursement of
his placement fee with interest of twelve (12%) per annum, plus his salaries for the
unexpired portion of his employment contract or for three (3) months for every year of
the unexpired term, whichever is less.

....

(Emphasis supplied)

Section 15 of Republic Act No. 8042 states that "repatriation of the worker and the
transport of his [or her] personal belongings shall be the primary responsibility of the
agency which recruited or deployed the worker overseas." The exception is when
"termination of employment is due solely to the fault of the worker," 80 which as we have
established, is not the case. It reads: SEC. 15. REPATRIATION OF WORKERS;
EMERGENCY REPATRIATION FUND. – The repatriation of the worker and the
transport of his personal belongings shall be the primary responsibility of the agency
which recruited or deployed the worker overseas. All costs attendant to repatriation
shall be borne by or charged to the agency concerned and/or its principal. Likewise,
the repatriation of remains and transport of the personal belongings of a deceased
worker and all costs attendant thereto shall be borne by the principal and/or local
agency. However, in cases where the termination of employment is due solely to the
fault of the worker, the principal/employer or agency shall not in any manner be
responsible for the repatriation of the former and/or his belongings.

....

The Labor Code81 also entitles the employee to 10% of the amount of withheld wages
as attorney’s feeswhen the withholding is unlawful.

The Court of Appeals affirmedthe National Labor Relations Commission’s decision to

award respondent NT$46,080.00 or the threemonth equivalent of her salary, attorney’s
fees of NT$300.00, and the reimbursement of the withheld NT$3,000.00 salary, which
answered for her repatriation.

We uphold the finding that respondent is entitled to all of these awards. The award of
the three-month equivalent of respondent’s salary should, however, be increased to
the amount equivalent to the unexpired term of the employment contract.
In Serrano v. Gallant Maritime Services, Inc. and Marlow Navigation Co., Inc., 82 this
court ruled that the clause "or for three (3) months for every year of the unexpired term,
whichever is less"83 is unconstitutional for violating the equal protection clause and
substantive due process.84

A statute or provision which was declared unconstitutional is not a law. It "confers no

rights; it imposes no duties; it affords no protection; it creates no office; it is inoperative
as if it has not been passed at all."85

We are aware that the clause "or for three (3) months for every year of the unexpired
term, whichever is less"was reinstated in Republic Act No. 8042 upon promulgation of
Republic Act No. 10022 in 2010. Section 7 of Republic Act No. 10022 provides:

Section 7.Section 10 of Republic Act No. 8042, as amended, is hereby amended to

read as follows:

SEC. 10. Money Claims.– Notwithstanding any provision of law to the contrary, the
Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the
original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days
after the filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment including claims for actual, moral, exemplary and other forms of damage.
Consistent with this mandate, the NLRC shall endeavor to update and keep abreast
with the developments in the global services industry.

The liability of the principal/employer and the recruitment/placement agency for any
and all claims under this section shall be joint and several. This provision shall be
incorporated in the contract for overseas employment and shall be a condition
precedent for its approval. The performance bond to de [sic] filed by the
recruitment/placement agency, as provided by law, shall be answerable for all money
claims or damages that may be awarded to the workers. If the recruitment/placement
agency is a juridical being, the corporate officers and directors and partners as the
case may be, shall themselves be jointly and solidarily liable with the corporation or
partnership for the aforesaid claims and damages.

Such liabilities shall continue during the entire period or duration of the employment
contract and shall not be affected by any substitution, amendment or modification
made locally or in a foreign country of the said contract.

Any compromise/amicable settlement or voluntary agreement on money claims

inclusive of damages under this section shall be paid within thirty (30) days from
approval of the settlement by the appropriate authority.
In case of termination of overseas employment without just, valid or authorized cause
as defined by law or contract, or any unauthorized deductions from the migrant
worker’s salary, the worker shall be entitled to the full reimbursement if [sic] his
placement fee and the deductions made with interest at twelve percent (12%) per
annum, plus his salaries for the unexpired portion of his employment contract or for
three (3) months for every year of the unexpired term, whichever is less.

In case of a final and executory judgement against a foreign employer/principal, it shall

be automatically disqualified, without further proceedings, from participating in the
Philippine Overseas Employment Program and from recruiting and hiring Filipino
workers until and unless it fully satisfies the judgement award.

Noncompliance with the mandatory periods for resolutions of case providedunder this
section shall subject the responsible officials to any or all of the following penalties:

(a) The salary of any such official who fails to render his decision or resolution
within the prescribed period shall be, or caused to be, withheld until the said
official complies therewith;

(b) Suspension for not more than ninety (90) days; or

(c) Dismissal from the service with disqualification to hold any appointive public
office for five (5) years.

Provided, however,That the penalties herein provided shall be without prejudice to any
liability which any such official may have incured [sic] under other existing laws or rules
and regulations as a consequence of violating the provisions of this paragraph.
(Emphasis supplied)

Republic Act No. 10022 was promulgated on March 8, 2010. This means that the
reinstatement of the clause in Republic Act No. 8042 was not yet in effect at the time of
respondent’s termination from work in 1997.86 Republic Act No. 8042 before it was
amended byRepublic Act No. 10022 governs this case.

When a law is passed, this court awaits an actual case that clearly raises adversarial
positions in their proper context before considering a prayer to declare it as
unconstitutional.

However, we are confronted with a unique situation. The law passed incorporates the
exact clause already declared as unconstitutional, without any perceived substantial
change in the circumstances.
This may cause confusion on the part of the National Labor Relations Commission and
the Court of Appeals.At minimum, the existence of Republic Act No. 10022 may delay
the execution of the judgment in this case, further frustrating remedies to assuage the
wrong done to petitioner.

Hence, there is a necessity to decide this constitutional issue.

Moreover, this court is possessed with the constitutional duty to "[p]romulgate rules
concerning the protection and enforcement of constitutional rights."87 When cases
become mootand academic, we do not hesitate to provide for guidance to bench and
bar in situations where the same violations are capable of repetition but will evade
review. This is analogous to cases where there are millions of Filipinos working abroad
who are bound to suffer from the lack of protection because of the restoration of an
identical clause in a provision previously declared as unconstitutional.

In the hierarchy of laws, the Constitution is supreme. No branch or office of the

government may exercise its powers in any manner inconsistent with the Constitution,
regardless of the existence of any law that supports such exercise. The Constitution
cannot be trumped by any other law. All laws must be read in light of the Constitution.
Any law that is inconsistent with it is a nullity.

Thus, when a law or a provision of law is null because it is inconsistent with the
Constitution,the nullity cannot be cured by reincorporation or reenactment of the same
or a similar law or provision. A law or provision of law that was already declared
unconstitutional remains as such unless circumstances have sochanged as to warrant
a reverse conclusion.

We are not convinced by the pleadings submitted by the parties that the situation has
so changed so as to cause us to reverse binding precedent.

Likewise, there are special reasons of judicial efficiency and economy that attend to
these cases. The new law puts our overseas workers in the same vulnerable position
as they were prior to Serrano. Failure to reiterate the very ratio decidendi of that case
will result in the same untold economic hardships that our reading of the Constitution
intended to avoid. Obviously, we cannot countenance added expenses for further
litigation thatwill reduce their hardearned wages as well as add to the indignity of
having been deprived of the protection of our laws simply because our precedents
have not been followed. There is no constitutional doctrine that causes injustice in the
face of empty procedural niceties. Constitutional interpretation is complex, but it is
never unreasonable.
Thus, in a resolution88 dated October 22, 2013, we ordered the parties and the Office
of the Solicitor General to comment on the constitutionality of the reinstated clause in
Republic Act No. 10022.

In its comment,89 petitioner argued that the clause was constitutional.90 The legislators
intended a balance between the employers’ and the employees’ rights by not unduly
burdening the local recruitment agency.91 Petitioner is also of the view that the clause
was already declared as constitutional in Serrano.92

The Office of the Solicitor General also argued that the clause was valid and
constitutional.93 However, since the parties never raised the issue of the
constitutionality of the clause asreinstated in Republic Act No. 10022, its contention is
that it is beyond judicial review.94

On the other hand, respondentargued that the clause was unconstitutional because it
infringed on workers’ right to contract.95

We observe that the reinstated clause, this time as provided in Republic Act. No.
10022, violates the constitutional rights to equal protection and due process.96
Petitioner as well as the Solicitor General have failed to show any compelling changein
the circumstances that would warrant us to revisit the precedent.

We reiterate our finding in Serrano v. Gallant Maritime that limiting wages that should
be recovered by anillegally dismissed overseas worker to three months is both a
violation of due process and the equal protection clauses of the Constitution.

Equal protection of the law is a guarantee that persons under like circumstances and
falling within the same class are treated alike, in terms of "privileges conferred and
liabilities enforced."97 It is a guarantee against "undue favor and individual or class
privilege, as well as hostile discrimination or the oppression of inequality."98

In creating laws, the legislature has the power "to make distinctions and
classifications."99

In exercising such power, it has a wide discretion.100

The equal protection clause does not infringe on this legislative power.101 A law is void
on this basis, only if classifications are made arbitrarily.102 There is no violation of the
equal protection clause if the law applies equally to persons within the same class and
if there are reasonable grounds for distinguishing between those falling within the class
and those who do not fall within the class.103 A law that does not violate the equal
protection clause prescribesa reasonable classification.104
A reasonable classification "(1) must rest on substantial distinctions; (2) must be
germane to the purposes of the law; (3) must not be limited to existing conditions only;
and (4) must apply equally to all members of the same class."105

The reinstated clause does not satisfy the requirement of reasonable classification.

In Serrano, we identified the classifications made by the reinstated clause. It

distinguished between fixed-period overseas workers and fixedperiod local workers.106
It also distinguished between overseas workers with employment contracts of less than
one year and overseas workers with employment contracts of at least one year.107
Within the class of overseas workers with at least one-year employment contracts,
there was a distinction between those with at least a year left in their contracts and
those with less than a year left in their contracts when they were illegally dismissed.108

The Congress’ classification may be subjected to judicial review. In Serrano, there is a

"legislative classification which impermissibly interferes with the exercise of a
fundamental right or operates to the peculiar disadvantage of a suspect class." 109

Under the Constitution, labor is afforded special protection.110 Thus, this court in
Serrano, "[i]mbued with the same sense of ‘obligation to afford protection to labor,’ . . .
employ[ed] the standard of strict judicial scrutiny, for it perceive[d] in the subject clause
a suspect classification prejudicial to OFWs."111

We also noted in Serranothat before the passage of Republic Act No. 8042, the money
claims of illegally terminated overseas and local workers with fixed-term employment
werecomputed in the same manner.112 Their money claims were computed based
onthe "unexpired portions of their contracts."113 The adoption of the reinstated clause in
Republic Act No. 8042 subjected the money claims of illegally dismissed overseas
workers with an unexpired term of at least a year to a cap of three months worth of
their salary.114 There was no such limitation on the money claims of illegally terminated
local workers with fixed-term employment.115

We observed that illegally dismissed overseas workers whose employment contracts

had a term of less than one year were granted the amount equivalent to the unexpired
portion of their employment contracts.116 Meanwhile, illegally dismissed overseas
workers with employment terms of at least a year were granted a cap equivalent to
three months of their salary for the unexpired portions of their contracts.117

Observing the terminologies used inthe clause, we also found that "the subject clause
creates a sub-layer of discrimination among OFWs whose contract periods are for
more than one year: those who are illegally dismissed with less than one year left in
their contracts shall be entitled to their salaries for the entire unexpired portion thereof,
while those who are illegally dismissed with one year or more remaining in their
contracts shall be covered by the reinstated clause, and their monetary benefits limited
to their salaries for three months only."118

We do not need strict scrutiny to conclude that these classifications do not rest on any
real or substantial distinctions that would justify different treatments in terms of the
computation of money claims resulting from illegal termination.

Overseas workers regardless of their classifications are entitled to security of tenure, at

least for the period agreed upon in their contracts. This means that they cannot be
dismissed before the end of their contract terms without due process. If they were
illegally dismissed, the workers’ right to security of tenure is violated.

The rights violated when, say, a fixed-period local worker is illegally terminated are
neither greater than norless than the rights violated when a fixed-period overseas
worker is illegally terminated. It is state policy to protect the rights of workers
withoutqualification as to the place of employment.119 In both cases, the workers are
deprived of their expected salary, which they could have earned had they not been
illegally dismissed. For both workers, this deprivation translates to economic insecurity
and disparity.120 The same is true for the distinctions between overseas workers with
an employment contract of less than one year and overseas workers with at least one
year of employment contract, and between overseas workers with at least a year left in
their contracts and overseas workers with less than a year left in their contracts when
they were illegally dismissed.

For this reason, we cannot subscribe to the argument that "[overseas workers] are
contractual employeeswho can never acquire regular employment status, unlike local
workers"121 because it already justifies differentiated treatment in terms ofthe
computation of money claims.122

Likewise, the jurisdictional and enforcement issues on overseas workers’ money

claims do not justify a differentiated treatment in the computation of their money
claims.123 If anything, these issues justify an equal, if not greater protection and
assistance to overseas workers who generally are more prone to exploitation given
their physical distance from our government.

We also find that the classificationsare not relevant to the purpose of the law, which is
to "establish a higher standard of protection and promotion of the welfare of migrant
workers, their families and overseas Filipinos in distress, and for other purposes." 124
Further, we find specious the argument that reducing the liability of placement
agencies "redounds to the benefit of the [overseas] workers."125

Putting a cap on the money claims of certain overseas workers does not increase the
standard of protection afforded to them. On the other hand, foreign employers are
more incentivizedby the reinstated clause to enter into contracts of at least a year
because it gives them more flexibility to violate our overseas workers’ rights. Their
liability for arbitrarily terminating overseas workers is decreased at the expense of the
workers whose rights they violated. Meanwhile, these overseas workers who are
impressed with an expectation of a stable job overseas for the longer contract period
disregard other opportunities only to be terminated earlier. They are left with claims
that are less than what others in the same situation would receive. The reinstated
clause, therefore, creates a situation where the law meant to protect them makes
violation of rights easier and simply benign to the violator.

As Justice Brion said in his concurring opinion in Serrano:

Section 10 of R.A. No. 8042 affects these well-laid rules and measures, and in fact
provides a hidden twist affecting the principal/employer’s liability. While intended as an
incentive accruing to recruitment/manning agencies, the law, as worded, simply limits
the OFWs’ recovery in wrongfuldismissal situations. Thus, it redounds to the benefit of
whoever may be liable, including the principal/employer – the direct employer primarily
liable for the wrongful dismissal. In this sense, Section 10 – read as a grant of
incentives to recruitment/manning agencies – oversteps what it aims to do by
effectively limiting what is otherwise the full liability of the foreign principals/employers.
Section 10, in short, really operates to benefit the wrong party and allows that party,
without justifiable reason, to mitigate its liability for wrongful dismissals. Because of this
hidden twist, the limitation ofliability under Section 10 cannot be an "appropriate"
incentive, to borrow the term that R.A. No. 8042 itself uses to describe the incentive it
envisions under its purpose clause.

What worsens the situation is the chosen mode of granting the incentive: instead of a
grant that, to encourage greater efforts at recruitment, is directly related to extra efforts
undertaken, the law simply limits their liability for the wrongful dismissals of already
deployed OFWs. This is effectively a legally-imposed partial condonation of their
liability to OFWs, justified solely by the law’s intent to encourage greater deployment
efforts. Thus, the incentive,from a more practical and realistic view, is really part of a
scheme to sell Filipino overseas labor at a bargain for purposes solely of attracting the
market. . . .

The so-called incentive is rendered particularly odious by its effect on the OFWs — the
benefits accruing to the recruitment/manning agencies and their principals are
takenfrom the pockets of the OFWs to whom the full salaries for the unexpired portion
of the contract rightfully belong. Thus, the principals/employers and the
recruitment/manning agencies even profit from their violation of the security of tenure
that an employment contract embodies. Conversely, lesser protection is afforded the
OFW, not only because of the lessened recovery afforded him or her by operation of
law, but also because this same lessened recovery renders a wrongful dismissal easier
and less onerous to undertake; the lesser cost of dismissing a Filipino will always bea
consideration a foreign employer will take into account in termination of employment
decisions. . . .126

Further, "[t]here can never be a justification for any form of government action that
alleviates the burden of one sector, but imposes the same burden on another sector,
especially when the favored sector is composed of private businesses suchas
placement agencies, while the disadvantaged sector is composed ofOFWs whose
protection no less than the Constitution commands. The idea thatprivate business
interest can be elevated to the level of a compelling state interest is odious."127

Along the same line, we held that the reinstated clause violates due process rights. It is
arbitrary as it deprives overseas workers of their monetary claims without any
discernable valid purpose.128

Respondent Joy Cabiles is entitled to her salary for the unexpired portion of her
contract, in accordance with Section 10 of Republic Act No. 8042. The award of the
three-month equivalence of respondent’s salary must be modified accordingly. Since
she started working on June 26, 1997 and was terminated on July 14, 1997,
respondent is entitled to her salary from July 15, 1997 to June 25, 1998. "To rule
otherwise would be iniquitous to petitioner and other OFWs, and would,in effect, send
a wrong signal that principals/employers and recruitment/manning agencies may
violate an OFW’s security of tenure which an employment contract embodies and
actually profit from such violation based on an unconstitutional provision of law." 129

III

On the interest rate, the Bangko Sentral ng Pilipinas Circular No. 799 of June 21, 2013,
which revised the interest rate for loan or forbearance from 12% to 6% in the absence
of stipulation,applies in this case. The pertinent portions of Circular No. 799, Series of
2013, read: The Monetary Board, in its Resolution No. 796 dated 16 May 2013,
approved the following revisions governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of
1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as to
such rateof interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for
Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.

Through the able ponencia of Justice Diosdado Peralta, we laid down the guidelines in
computing legal interest in Nacar v. Gallery Frames:130

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages, except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code),
but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged. 3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to
July 1, 2013, shall not be disturbed and shall continue to be implemented applying the
rate of interest fixed therein.131

Circular No. 799 is applicable only in loans and forbearance of money, goods, or
credits, and in judgments when there is no stipulation on the applicable interest rate.
Further, it is only applicable if the judgment did not become final and executory before
July 1, 2013.132
We add that Circular No. 799 is not applicable when there is a law that states
otherwise. While the Bangko Sentral ng Pilipinas has the power to set or limit interest
rates,133 these interest rates do not apply when the law provides that a different interest
rate shall be applied. "[A] Central Bank Circular cannot repeal a law. Only a law can
repeal another law."134

For example, Section 10 of Republic Act No. 8042 provides that unlawfully terminated
overseas workers are entitled to the reimbursement of his or her placement fee with an
interest of 12% per annum. Since Bangko Sentral ng Pilipinas circulars cannotrepeal
Republic Act No. 8042, the issuance of Circular No. 799 does not have the effect of
changing the interest on awards for reimbursement of placement fees from 12% to 6%.
This is despite Section 1 of Circular No. 799, which provides that the 6% interest rate
applies even to judgments.

Moreover, laws are deemed incorporated in contracts. "The contracting parties need
not repeat them. They do not even have to be referred to. Every contract, thus,
contains not only what has been explicitly stipulated, but the statutory provisions that
have any bearing on the matter."135 There is, therefore, an implied stipulation in
contracts between the placement agency and the overseasworker that in case the
overseas worker is adjudged as entitled to reimbursement of his or her placement fees,
the amount shall be subject to a 12% interest per annum. This implied stipulation has
the effect of removing awards for reimbursement of placement fees from Circular No.
799’s coverage.

The same cannot be said for awardsof salary for the unexpired portion of the
employment contract under Republic Act No. 8042. These awards are covered by
Circular No. 799 because the law does not provide for a specific interest rate that
should apply.

In sum, if judgment did not become final and executory before July 1, 2013 and there
was no stipulation in the contract providing for a different interest rate, other money
claims under Section 10 of Republic Act No. 8042 shall be subject to the 6% interest
per annum in accordance with Circular No. 799.

This means that respondent is also entitled to an interest of 6% per annum on her
money claims from the finality of this judgment.

IV

Finally, we clarify the liabilities ofWacoal as principal and petitioner as the employment
agency that facilitated respondent’s overseas employment.
Section 10 of the Migrant Workers and Overseas Filipinos Act of 1995 provides that
the foreign employer and the local employment agency are jointly and severally liable
for money claims including claims arising out of an employer-employee relationship
and/or damages. This section also provides that the performance bond filed by the
local agency shall be answerable for such money claims or damages if they were
awarded to the employee.

This provision is in line with the state’s policy of affording protection to labor and
alleviating workers’ plight.136

In overseas employment, the filing of money claims against the foreign employer is
attended by practical and legal complications.1âwphi1 The distance of the foreign
employer alonemakes it difficult for an overseas worker to reach it and make it liable
for violations of the Labor Code. There are also possible conflict of laws, jurisdictional
issues, and procedural rules that may be raised to frustrate an overseas
worker’sattempt to advance his or her claims.

It may be argued, for instance, that the foreign employer must be impleaded in the
complaint as an indispensable party without which no final determination can be had of
an action.137

The provision on joint and several liability in the Migrant Workers and Overseas
Filipinos Act of 1995 assures overseas workers that their rights will not be frustrated
with these complications. The fundamental effect of joint and several liability is that
"each of the debtors is liable for the entire obligation."138 A final determination may,
therefore, be achieved even if only oneof the joint and several debtors are impleaded
in an action. Hence, in the case of overseas employment, either the local agency or the
foreign employer may be sued for all claims arising from the foreign employer’s labor
law violations. This way, the overseas workers are assured that someone — the
foreign employer’s local agent — may be made to answer for violationsthat the foreign
employer may have committed.

The Migrant Workers and Overseas Filipinos Act of 1995 ensures that overseas
workers have recourse in law despite the circumstances of their employment. By
providing that the liability of the foreign employer may be "enforced to the full extent"139
against the local agent,the overseas worker is assured of immediate and
sufficientpayment of what is due them.140

Corollary to the assurance of immediate recourse in law, the provision on joint and
several liability in the Migrant Workers and Overseas Filipinos Act of 1995 shifts the
burden of going after the foreign employer from the overseas worker to the local
employment agency. However, it must be emphasized that the local agency that is
held to answer for the overseas worker’s money claims is not leftwithout remedy. The
law does not preclude it from going after the foreign employer for reimbursement of
whatever payment it has made to the employee to answer for the money claims
against the foreign employer.

A further implication of making localagencies jointly and severally liable with the foreign
employer is thatan additional layer of protection is afforded to overseas workers. Local
agencies, which are businesses by nature, are inoculated with interest in being always
on the lookout against foreign employers that tend to violate labor law. Lest they risk
their reputation or finances, local agenciesmust already have mechanisms for guarding
against unscrupulous foreign employers even at the level prior to overseas
employment applications.

With the present state of the pleadings, it is not possible to determine whether there
was indeed a transfer of obligations from petitioner to Pacific. This should not be an
obstacle for the respondent overseas worker to proceed with the enforcement of this
judgment. Petitioner is possessed with the resources to determine the proper legal
remedies to enforce its rights against Pacific, if any.

Many times, this court has spoken on what Filipinos may encounter as they travel into
the farthest and mostdifficult reaches of our planet to provide for their families. In Prieto
v. NLRC:141

The Court is not unaware of the many abuses suffered by our overseas workers in the
foreign land where they have ventured, usually with heavy hearts, in pursuit of a more
fulfilling future. Breach of contract, maltreatment, rape, insufficient nourishment, sub-
human lodgings, insults and other forms of debasement, are only a few of the
inhumane acts towhich they are subjected by their foreign employers, who probably
feel they can do as they please in their own country. Whilethese workers may indeed
have relatively little defense against exploitation while they are abroad, that
disadvantage must not continue to burden them when they return to their own territory
to voice their muted complaint. There is no reason why, in their very own land, the
protection of our own laws cannot be extended to them in full measure for the redress
of their grievances.142

But it seems that we have not said enough.

We face a diaspora of Filipinos. Their travails and their heroism can be told a million
times over; each of their stories as real as any other. Overseas Filipino workers brave
alien cultures and the heartbreak of families left behind daily. They would count the
minutes, hours, days, months, and years yearning to see their sons and daughters. We
all know of the joy and sadness when they come home to see them all grown up and,
being so, they remember what their work has cost them. Twitter accounts, Facetime,
and many other gadgets and online applications will never substitute for their lost
physical presence.

Unknown to them, they keep our economy afloat through the ebb and flow of political
and economic crises. They are our true diplomats, they who show the world the
resilience, patience, and creativity of our people. Indeed, we are a people who
contribute much to the provision of material creations of this world.

This government loses its soul if we fail to ensure decent treatment for all Filipinos. We
default by limiting the contractual wages that should be paid to our workers when their
contracts are breached by the foreign employers. While we sit, this court will ensure
that our laws will reward our overseas workers with what they deserve: their dignity.

Inevitably, their dignity is ours as weil.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is

AFFIRMED with modification. Petitioner Sameer Overseas Placement Agency is
ORDERED to pay respondent Joy C. Cabiles the amount equivalent to her salary for
the unexpired portion of her employment contract at an interest of 6% per annum from
the finality of this judgment. Petitioner is also ORDERED to reimburse respondent the
withheld NT$3,000.00 salary and pay respondent attorney's fees of NT$300.00 at an
interest of 6% per annum from the finality of this judgment.

The clause, "or for three (3) months for every year of the unexpired term, whichever is
less" in Section 7 of Republic Act No. 10022 amending Section 10 of Republic Act No.
8042 is declared unconstitutional and, therefore, null and void.

SO ORDERED.
G.R. No. L-26937 October 5, 1927

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.

VILLAMOR, J.:

On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together
with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a
commercial partnership under the name of "Tai Sing and Co.," with a capital of P40,000
contributed by said partners. In the articles of copartnership, Exhibit A, it appears that
the partnership was to last for five years from after the date of its organization, and that
its purpose was to do business in the City of Iloilo, Province of Iloilo, or in any other part
of the Philippine Islands the partners might desire, under the name of "Tai Sing & Co.,"
for the purchase and sale of merchandise, goods, and native, as well as Chinese and
Japanese, products, and to carry on such business and speculations as they might
consider profitable. One of the partners, J. A. Say Lian Ping was appointed general
manager of the partnership, with the appointed general manager of the partnership, with
the powers specified in said articles of copartnership.

On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney
(Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his stead as manager and
administrator of "Tai Sing & Co.," on July 26, 1918, for, and obtained a loan of P8,000 in
current account from the plaintiff bank. (Exhibit C). As security for said loan, he
mortgaged certain personal property of "Tai Sing & Co., (Exhibit C.)

This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-
in-fact of "Tai Sing & Co., executed a chattel mortgage in favor of plaintiff bank as
security for a loan of P20,000 with interest (Exhibit D). This mortgage was again renewed
on April 16, 1920 and A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed
another chattel mortgage for the said sum of P20,000 in favor of plaintiff bank. (Exhibit
E.) According to this mortgage contract, the P20,000 loan was to earn 9 per cent interest
per annum.

On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the
latter represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit
by virtue of which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from
plaintiff bank on January 7, 1921, executing a chattel mortgage on certain personal
property belonging to "Tai Sing & Co.
Defendants had been using this commercial credit in a current account with the plaintiff
bank, from the year 1918, to May 22, 1921, and the debit balance of this account, with
interest to December 31, 1924, is as follows:

TAI SING & CO.

To your outstanding account (C. O. D.)
with us on June 30, 1922 P16,518.74
Interest on same from June 30, 1922 to
December 31,1924, at 9 per cent per
annum 3,720.86

Total 20, 239.00

=========

This total is the sum claimed in the complaint, together with interest on the P16,518.74
debt, at 9 per cent per annum from January 1, 1925 until fully paid, with the costs of the
trial.

Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a
general partnership, and that the commercial credit in current account which "Tai Sing &
Co. obtained from the plaintiff bank had not been authorized by the board of directors of
the company, nor was the person who subscribed said contract authorized to make the
same, under the article of copartnership. The other defendants, Yap Sing and Ng Khey
Ling, answered the complaint denying each and every one of the allegations contained
therein.

After the hearing, the court found:

(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng
indebted to plaintiff Philippine National Bank in sum of P22,595.26 to July 29,
1926, with a daily interest of P4.14 on the balance on account of the partnership
"Tai Sing & Co. for the sum of P16,518.74 until September 9, 1922;

(2) Said defendants are ordered jointly and severally to pay the Philippine
National Bank the sum of P22,727.74 up to August 31, 1926, and from the date,
P4.14 daily interest on the principal; and

(3) The defendants are furthermore ordered to pay the costs of the
action.1awph!l.net

Defendants appealed, making the following assignments of error:

 I. The trial court erred in finding that article 126 of the Code of Commerce at
present in force is not mandatory.

II. The trial court erred in finding that the partnership agreement of "Tai Sing &
Co., (Exhibit A), is in accordance with the requirements of article 125 of the Code
of Commerce for the organization of a regular partnership.

III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in
November, 1917, as a proven fact.

IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot
extinguish the defendants' obligation to the plaintiff bank, because the last debt
incurred by the commercial partnership "Tai Sing & Co., was that evidence by
Exhibit F, signed by Sy Tit as attorney-in-fact of the members of "Tai Sing & Co.,
by virtue of Exhibit G.

V. The trial court erred in not finding that plaintiff bank was not able to collect its
credit from the goods of "Tai Sing & Co., given as security therefor through its
own fault and negligence; and that the action brought by plaintiff is a manifest
violation of article 237 of the present Code of Commerce.

VI. The trial court erred in finding that the current account of "Tai Sing & Co. with
plaintiff bank shows a debit balance of P16,518.74, which in addition to interest
at 9 per cent per annum from July 29, 1926, amount to P16,595.26, with a daily
interest of P4.14 on the sum of P16,518.74.

VII. The trial court erred in ordering the defendants appellants to pay jointly and
severally to the Philippine National Bank the sum of P22,727.74 up to August 31,
1926, and interest on P16,518.74 from that date until fully paid, with the costs of
the action.

VIII. The trial court erred in denying the motion for a new trial filed by defendants-
appellants.

Appellants admit, and it appears from the context of Exhibit A, that the defendant
association formed by the defendants is a general partnership, as defined in article 126
of the Code Commerce. This partnership was registered in the mercantile register of the
Province of Iloilo. The only anomaly noted in its organization is that instead of adopting
for their firm name the names of all of the partners, of several of them, or only one of
them, to be followed in the last two cases, by the words "and to be followed in the last
two cases, by the words "and company" the partners agreed upon "Tai Sing & Co." as
the firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-
Seng, cited by appellants, this court held that, as the company formed by defendants
had existed in fact, though not in law due to the fact that it was not recorded in the
register, and having operated and contracted debts in favor of the plaintiff, the same
must be paid by someone. This applies more strongly to the obligations contracted by
the defendants, for they formed a partnership which was registered in the mercantile
register, and carried on business contracting debts with the plaintiff bank. The
anomalous adoption of the firm name above noted does not affect the liability of the
general partners to third parties under article 127 of the Code of Commerce. And the
Supreme Court so held in the case of Jo Chung Cang vs. Pacific Commercial Co., (45
Phil., 142), in which it said that the object of article 126 of the Code of Commerce in
requiring a general partnership to transact business under the name of all its members,
of several of them, or of one only, is to protect the public from imposition and fraud; and
that the provision of said article 126 is for the protection of the creditors rather than of
the partners themselves. And consequently the doctrine was enunciated that the law
must be unlawful and unenforceable only as between the partners and at the instance
of the violating party, but not in the sense of depriving innocent parties of their rights who
may have dealt with the offenders in ignorance of the latter having violated the law; and
that contracts entered into by commercial associations defectively organized are valid
when voluntarily executed by the parties, and the only question is whether or not they
complied with the agreement. Therefore, the defendants cannot invoke in their defense
the anomaly in the firm name which they themselves adopted.

As to the alleged death of the manager of the company, Say Lian Ping, before the
attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did not find
this fact proven at the hearing. But even supposing that the court had erred, such an
error would not justify the reversal of the judgment, for two reasons at least: (1) Because
Ou Yong Kelam was a partner who contracted in the name of the partnership, without
any objection of the other partners; and (2) because it appears in the record that the
appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit
as manager, and he obtained from the plaintiff bank the credit in current account, the
debit balance of which is sought to be recovered in this action.

Appellants allege that such of their property as is not included in the partnership assets
cannot-be seized for the payment of the debts contracted by the partnership until after
the partnership property has been exhausted. The court found that the partnership
property described in the mortgage Exhibit F no loner existed at the time of the filing of
the herein complaint nor has its existence been proven, nor was it offered to the plaintiff
for sale. We find no just reason to reverse this conclusion of the trial court, and this being
so, it follows that article 237 of the Code of Commerce, invoked by the appellant, can in
no way have any application here.
Appellants also assign error to the action of the trial court in ordering them to pay plaintiff,
jointly and severally, the sums claimed with 9 per cent interest on P16,518.74, owing
from them.

The judgment against the appellants is in accordance with article 127 of the Code of
Commerce which provides that all the members of a general partnership, be they
managing partners thereof or not, shall be personally and solidarily liable with all their
property, for the results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person authorized to use it.

As to the amount of the interest suffice it to remember that the credit in current account
sued on in this case as been renewed by the parties in such a way that while it appears
in the mortgage Exhibit D executed on March 25, 1919 by the attorney-in-fact Ou Yong
Kelam that the P20,000 credit would earn 8 per cent interest annually, yet from that
executed on April 16, 1920, Exhibit E, it appears that the P20,000 would earn 9 per cent
interest per annum. The credit was renewed in January, 1921, and in the deed of pledge,
Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-fact Sy Tit, it
appears that this security is for the payment of the sums received by the partnership, not
to exceed P20,000 with interest and collection fees. There can be no doubt that the
parties agreed upon the rate of interest fixed in the document Exhibit E, namely 9 per
cent per annum.

The judgment appealed from is in accordance with the law, and must therefore be, as it
is hereby, affirmed with costs against the appellants. So ordered.
G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY, respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision1
dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals in CA-G.R.
CV No. 47937, the dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside,

and the complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita,
Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN
ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19,
1990. The complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of
Baguio City was for accounting, liquidation and winding up of the alleged partnership
formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18,
1991, the petitioners filed an amended complaint4 impleading private respondent herein
BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended
complaint was admitted by the trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and hardware and construction
supplies. They named their enterprise "Benguet Lumber" which they jointly managed
until Tan Eng Kee's death. Petitioners herein averred that the business prospered due
to the hard work and thrift of the alleged partners. However, they claimed that in 1981,
Tan Eng Lay and his children caused the conversion of the partnership "Benguet
Lumber" into a corporation called "Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in
the profits of the business. Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof, and the equal division of the net
assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April
12, 1995, to wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular

partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular partnership
called Benguet Lumber and as such should share in the profits and/or losses of
the business venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over
to Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer
and/or as partner in a particular partnership have descended to the plaintiffs who
are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all the
assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper
share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the

assets of Benguet Lumber Company, Inc. until such time that said corporation is
finally liquidated are directed to submit the name of any person they want to be
appointed as receiver failing in which this Court will appoint the Branch Clerk of
Court or another one who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the
expenses in filing the instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13,
1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.
Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against
Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial
proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the defendants
before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere
employee of Benguet Lumber, were fake, based on the discrepancy in the signatures
of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria,
Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, 1999, the
Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed,
rendered judgment9 dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE

WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT;
(B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C)
THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO
AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME
FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON

THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT
BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG
KEE WAS ONLY AN EMPLOYEE THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF
BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP
JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY
RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE
ALL LIVING AT THE BENGUET LUMBER COMPOUND;
 b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
COMMANDING THE EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING
THE EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE
PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE

WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN
ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR
WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN
THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER
WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE

WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS
OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS
SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A
PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC
INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are supported by the evidence.10 Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:

Filing of petition with Supreme Court. — A party desiring to appeal by certiorari

from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for review on certiorari.
The petition shall raise only questions of law which must be distinctly set forth.11
[emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us
to analyze the evidentiary basis on which the lower court rendered judgment. Review
of factual issues is therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or

conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of
the case, and such findings are contrary to the admissions of both appellant and
appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension

of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence but such findings are contradicted by the evidence on
record.12

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs
mentioned only the existence of a partnership, the Court in turn went beyond that
by justifying the existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing

between the parties, equal proprietary interest and the exercise by the parties
equally of the conduct of the business, thus:
xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the
Benguet Lumber before the war. The appellees however argued that (Rollo, p.
104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war
Benguet Lumber were confiscated if not burned by the Japanese. After the war,
because of the absence of capital to start a lumber and hardware business, Lay
and Kee pooled the proceeds of their individual businesses earned from buying
and selling military supplies, so that the common fund would be enough to form a
partnership, both in the lumber and hardware business. That Lay and Kee
actually established the Benguet Lumber in Baguio City, was even testified to by
witnesses. Because of the pooling of resources, the post-war Benguet Lumber
was eventually established. That the father of the plaintiffs and Lay were
partners, is obvious from the fact that: (1) they conducted the affairs of the
business during Kee's lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the suppliers, (4) their
families stayed together at the Benguet Lumber compound, and (5) all their
children were employed in the business in different capacities.

xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name,
there was no firm account, no firm letterheads submitted as evidence, no
certificate of partnership, no agreement as to profits and losses, and no time
fixed for the duration of the partnership. There was even no attempt to submit an
accounting corresponding to the period after the war until Kee's death in 1984. It
had no business book, no written account nor any memorandum for that matter
and no license mentioning the existence of a partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The

certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the
only registered owner of the Benguet Lumber and Hardware. His application for
registration, effective 1954, in fact mentioned that his business started in 1945
until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand,
was merely an employee of the Benguet Lumber Company, on the basis of his
SSS coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U",
inclusive, for the years 1982 to 1983, Kee was similarly listed only as an
employee; precisely, he was on the payroll listing. In the Termination Notice,
Exhibit "5", Lay was mentioned also as the proprietor.

xxx xxx xxx

 We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be
constituted in any form, but when an immovable is constituted, the execution of a
public instrument becomes necessary. This is equally true if the capitalization
exceeds P3,000.00, in which case a public instrument is also necessary, and
which is to be recorded with the Securities and Exchange Commission. In this
case at bar, we can easily assume that the business establishment, which from
the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely
exceeded P3,000.00, in addition to the accumulation of real properties and to the
fact that it is now a compound. The execution of a public instrument, on the other
hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only
Lay and the members of his family. There is no proof either that the capital
assets of the partnership, assuming them to be in existence, were maliciously
assigned or transferred by Lay, supposedly to the corporation and since then
have been treated as a part of the latter's capital assets, contrary to the
allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in
a room in the bunk house in Trinidad, but within the compound of the lumber
establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated
on a table and were "commanding people" as testified to by the son, Elpidio Tan;
3) that both were supervising the laborers, as testified to by Victoria Choi; and 4)
that Dionisio Peralta was supposedly being told by Kee that the proceeds of the
80 pieces of the G.I. sheets were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract,

either oral or written. However, if it involves real property or where the capital is
P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of
the parties to execute the contract; 3) money property or industry contribution; 4)
community of funds and interest, mentioning equality of the partners or one
having a proportionate share in the benefits; and 5) intention to divide the profits,
being the true test of the partnership. The intention to join in the business venture
for the purpose of obtaining profits thereafter to be divided, must be established.
We cannot see these elements from the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had
adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint
venture. In this connection, we have held that whether a partnership exists is a factual
matter; consequently, since the appeal is brought to us under Rule 45, we cannot
entertain inquiries relative to the correctness of the assessment of the evidence by the
court a quo.13 Inasmuch as the Court of Appeals and the trial court had reached
conflicting conclusions, perforce we must examine the record to determine if the
reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership is defined by law as one where:

. . . two or more persons bind themselves to contribute money, property, or industry to

a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a
profession.14

Thus, in order to constitute a partnership, it must be established that (1) two or

more persons bound themselves to contribute money, property, or industry to a
common fund, and (2) they intend to divide the profits among themselves.15 The
agreement need not be formally reduced into writing, since statute allows the oral
constitution of a partnership, save in two instances: (1) when immovable property
or real rights are contributed,16 and (2) when the partnership has a capital of
three thousand pesos or more.17 In both cases, a public instrument is required.18
An inventory to be signed by the parties and attached to the public instrument is
also indispensable to the validity of the partnership whenever immovable
property is contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership.20 A particular partnership is
distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort
of informal partnership, with no firm name and no legal personality. In a joint
account, the participating merchants can transact business under their own
name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE

TRANSACTION, although the business of pursuing to a successful termination
may continue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-
ventures or partners, in which each party has an equal proprietary interest in the
capital or property contributed, and where each party exercises equal rights in the
conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may be
likened to a particular partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an organization
formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It
is hardly distinguishable from the partnership, since their elements are similar —
community of interest in the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288
P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdiction is that the partnership contemplates a general business
with some degree of continuity, while the joint venture is formed for the execution
of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116
Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906
[1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or
the articles of partnership but there is none. The alleged partnership, though, was
never formally organized. In addition, petitioners point out that the New Civil Code was
not yet in effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the parties from
complying with the provisions of the New Civil Code when it took effect on August 30,
1950. But all that is in the past. The net effect, however, is that we are asked to
determine whether a partnership existed based purely on circumstantial evidence. A
review of the record persuades us that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by petitioners falls short of the
quantum of proof required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan
Eng Lay, could have expounded on the precise nature of the business relationship
between them. In the absence of evidence, we cannot accept as an established fact
that Tan Eng Kee allegedly contributed his resources to a common fund for the
purpose of establishing a partnership. The testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with
the number of witnesses wherein preponderance lies;24 the quality of their testimonies
is to be considered. None of petitioners' witnesses could suitably account for the
beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose
deceased wife was related to Matilde Abubo.25 He stated that when he met Tan Eng
Kee after the liberation, the latter asked the former to accompany him to get 80 pieces
of G.I. sheets supposedly owned by both brothers.26 Tan Eng Lay, however, denied
knowledge of this meeting or of the conversation between Peralta and his brother.27
Tan Eng Lay consistently testified that he had his business and his brother had his,
that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be
that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is
not an indicium of the existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership
was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence
of a partnership is that the partners share in the profits and losses.29 Each has the right
to demand an accounting as long as the partnership exists.30 We have allowed a
scenario wherein "[i]f excellent relations exist among the partners at the start of the
business and all the partners are more interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing in the profits is perfectly plausible."31 But
in the situation in the case at bar, the deferment, if any, had gone on too long to be
plausible. A person is presumed to take ordinary care of his concerns.32 As we
explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the
second place, she did not furnish any help or intervention in the management of
the theatre. In the third place, it does not appear that she has even demanded
from defendant any accounting of the expenses and earnings of the business.
Were she really a partner, her first concern should have been to find out how the
business was progressing, whether the expenses were legitimate, whether the
earnings were correct, etc. She was absolutely silent with respect to any of the
acts that a partner should have done; all that she did was to receive her share of
P3,000.00 a month, which cannot be interpreted in any manner than a payment
for the use of the premises which she had leased from the owners. Clearly,
plaintiff had always acted in accordance with the original letter of defendant of
June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as
the real contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership.34 During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from his
brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting
of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet
Lumber, as it was then called. The authenticity of these documents was questioned by
petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his
wife and children. As aforesaid, the criminal cases were dismissed for insufficiency of
evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as
wages of an employee. In connection therewith, Article 1769 of the Civil Code
provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each
other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership,

whether such co-owners or co-possessors do or do not share any profits made
by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest
in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business, but no such inference shall be
drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the
profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other

property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only
an employee, not a partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to speak, since they did not present
and offer evidence that would show that Tan Eng Kee received amounts of money
allegedly representing his share in the profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee, received, if any, as his share in the profits
of Benguet Lumber Company for any particular period. Hence, they failed to prove that
Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business between
themselves, which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of
a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the employees; that both were
the ones who determined the price at which the stocks were to be sold; and that both
placed orders to the suppliers of the Benguet Lumber Company. They also point out
that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet
Lumber Company compound, a privilege not extended to its ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's position is
higher in rank, it is not unusual that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is

reposed by the owner, can order materials from suppliers for and in behalf of
Benguet Lumber. Furthermore, even a partner does not necessarily have to
perform this particular task. It is, thus, not an indication that Tan Eng Kee was a
partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound
and this privilege was not accorded to other employees, the undisputed fact
remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close
personal relations existed between them. Whatever privileges Tan Eng Lay gave
his brother, and which were not given the other employees, only proves the
kindness and generosity of Tan Eng Lay towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay
in connection with the pricing of stocks, this does not adequately prove the
existence of a partnership relation between them. Even highly confidential
employees and the owners of a company sometimes argue with respect to
 certain matters which, in no way indicates that they are partners as to each
other.35

In the instant case, we find private respondent's arguments to be well-taken. Where

circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such as
to support a finding of the existence of the parties' intent.36 Yet, in the case at bench,
even the aforesaid circumstances when taken together are not persuasive indicia of a
partnership. They only tend to show that Tan Eng Kee was involved in the operations
of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood
that as a member of the family, he occupied a niche above the rank-and-file
employees. He would have enjoyed liberties otherwise unavailable were he not kin,
such as his residence in the Benguet Lumber Company compound. He would have
moral, if not actual, superiority over his fellow employees, thereby entitling him to
exercise powers of supervision. It may even be that among his duties is to place orders
with suppliers. Again, the circumstances proffered by petitioners do not provide a
logical nexus to the conclusion desired; these are not inconsistent with the powers and
duties of a manager, even in a business organized and run as informally as Benguet
Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or

liquidation to speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of
Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.
G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT,
INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM,
respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,

vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents.

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of
Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court of
First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in
G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was
dismissed but in all other respects the trial court's decision was affirmed.

The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim

requiring Lim to pay plaintiff the amount of P311,056.02, with interest at the
rate of 12% per annum compounded monthly; plus 15% of the amount
awarded to plaintiff as attorney's fees from July 2,1966, until full payment is
made; plus P70,000.00 moral and exemplary damages.

It is found in the records that the cross party plaintiffs incurred additional
miscellaneous expenses aside from Pl51,000.00,,making a total of
P184,878.74. Defendant Jacob S. Lim is further required to pay cross party
plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half,
the amount of Pl84,878.74 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral and exemplary
damages in the amount of P184,878.84 with interest from the filing of the
cross-complaints until the amount is fully paid; plus moral and exemplary
damages in the amount of P50,000.00 for each of the two Cervanteses.
 Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as
attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer

against defendants Bormaheco, the Cervanteses and Constancio B.
Maglana, is dismissed. Instead, plaintiff is required to indemnify the
defendants Bormaheco and the Cervanteses the amount of P20,000.00 as
attorney's fees and the amount of P4,379.21, per year from 1966 with legal
rate of interest up to the time it is paid.

Furthermore, the plaintiff is required to pay Constancio B. Maglana the

amount of P20,000.00 as attorney's fees and costs.

No moral or exemplary damages is awarded against plaintiff for this action

was filed in good faith. The fact that the properties of the Bormaheco and
the Cervanteses were attached and that they were required to file a
counterbond in order to dissolve the attachment, is not an act of bad faith.
When a man tries to protect his rights, he should not be saddled with moral
or exemplary damages. Furthermore, the rights exercised were provided
for in the Rules of Court, and it was the court that ordered it, in the exercise
of its discretion.

No damage is decided against Malayan Insurance Company, Inc., the third-

party defendant, for it only secured the attachment prayed for by the
plaintiff Pioneer. If an insurance company would be liable for damages in
performing an act which is clearly within its power and which is the reason
for its being, then nobody would engage in the insurance business. No
further claim or counter-claim for or against anybody is declared by this
Court. (Rollo - G.R. No. 24197, pp. 15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
business as owner-operator of Southern Air Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered
into and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-
3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of
US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-
718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July
18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in
G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in
favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and
spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana
(respondents in both petitions) contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were supposed to be their contributions to a
new corporation proposed by Lim to expand his airline business. They executed two
(2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one
signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated that the indemnitors principally
agree and bind themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and nature which Pioneer may incur
in consequence of having become surety upon the bond/note and to pay, reimburse
and make good to Pioneer, its successors and assigns, all sums and amounts of
money which it or its representatives should or may pay or cause to be paid or become
liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in
favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in
favor of the former. It was stipulated therein that Lim transfer and convey to the surety
the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the
Register of Deeds of the City of Manila and with the Civil Aeronautics Administration
pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No.
776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request

payments from the surety. Pioneer paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners of the aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for
a writ of preliminary attachment against Lim and respondents, the Cervanteses,
Bormaheco and Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against
Lim alleging that they were not privies to the contracts signed by Lim and, by way of
counterclaim, sought for damages for being exposed to litigation and for recovery of
the sums of money they advanced to Lim for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but
dismissed Pioneer's complaint against all other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other respects the
trial court's decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT

DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND
THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF
THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT
IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT
FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE
TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)

The petitioner questions the following findings of the appellate court:

We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer

had reinsured its risk of liability under the surety bond in favor of JDA and
subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the recovery of the amount
of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is
not the real party in interest to institute the instant action as it does not
stand to be benefited or injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover

the amount from defendants, hence, it instituted the action is utterly devoid
of merit. Plaintiff did not even present any evidence that it is the attorney-in-
fact of the reinsurance company, authorized to institute an action for and in
behalf of the latter. To qualify a person to be a real party in interest in
whose name an action must be prosecuted, he must appear to be the
present real owner of the right sought to be enforced (Moran, Vol. I,
Comments on the Rules of Court, 1979 ed., p. 155). It has been held that
the real party in interest is the party who would be benefited or injured by
the judgment or the party entitled to the avails of the suit (Salonga v.
 Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is
meant a present substantial interest as distinguished from a mere
expectancy or a future, contingent, subordinate or consequential interest
(Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E.
2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of
Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).

Based on the foregoing premises, plaintiff Pioneer cannot be considered as

the real party in interest as it has already been paid by the reinsurer the
sum of P295,000.00 — the bulk of defendants' alleged obligation to
Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff

Pioneer from its reinsurer, the former was able to foreclose extra-judicially
one of the subject airplanes and its spare engine, realizing the total amount
of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00,
it is patent that plaintiff has been overpaid in the amount of P33,383.72
considering that the total amount it had paid to JDA totals to only
P298,666.28. To allow plaintiff Pioneer to recover from defendants the
amount in excess of P298,666.28 would be tantamount to unjust
enrichment as it has already been paid by the reinsurance company of the
amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis
defendant Lim's liability to JDA. Well settled is the rule that no person
should unjustly enrich himself at the expense of another (Article 22, New
Civil Code). (Rollo-84197, pp. 24-25).

The petitioner contends that-(1) it is at a loss where respondent court based its finding
that petitioner was paid by its reinsurer in the aforesaid amount, as this matter has
never been raised by any of the parties herein both in their answers in the court below
and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still none of the respondents had any
interest in the matter since the reinsurance is strictly between the petitioner and the re-
insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable considering that
whatever amount he would recover from the co-indemnitor will be paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance money
was never raised by the parties.

A cursory reading of the trial court's lengthy decision shows that two of the issues
threshed out were:
 xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so

much of its obligations to JDA as has been paid with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer

still any claim against defendants, considering the amount it has realized
from the sale of the mortgaged properties? (Record on Appeal, p. 359,
Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond
it had executed in favor of JDA, collected the proceeds of such reinsurance
in the sum of P295,000, and paid with the said amount the bulk of its
alleged liability to JDA under the said surety bond, it is plain that on this
score it no longer has any right to collect to the extent of the said amount.

On the question of why it is Pioneer, instead of the reinsurance (sic), that is

suing defendants for the amount paid to it by the reinsurers,
notwithstanding that the cause of action pertains to the latter, Pioneer says:
The reinsurers opted instead that the Pioneer Insurance & Surety
Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety
Corporation is representing the reinsurers to recover the amount.' In other
words, insofar as the amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint
that Pioneer is suing as attorney-in- fact of the reinsurers for any amount.
Lastly, and most important of all, Pioneer has no right to institute and
maintain in its own name an action for the benefit of the reinsurers. It is
well-settled that an action brought by an attorney-in-fact in his own name
instead of that of the principal will not prosper, and this is so even where
the name of the principal is disclosed in the complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that

'Every action must be prosecuted in the name of the real party
in interest.' This provision is mandatory. The real party in
interest is the party who would be benefitted or injured by the
judgment or is the party entitled to the avails of the suit.

This Court has held in various cases that an attorney-in-fact is

not a real party in interest, that there is no law permitting an
 action to be brought by an attorney-in-fact. Arroyo v. Granada
and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and
Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v.
San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer

has collected P295,000.00 from the reinsurers, the uninsured portion of
what it paid to JDA is the difference between the two amounts, or
P3,666.28. This is the amount for which Pioneer may sue defendants,
assuming that the indemnity agreement is still valid and effective. But since
the amount realized from the sale of the mortgaged chattels are
P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a
total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore,
Pioneer has no more claim against defendants. (Record on Appeal, pp.
360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate
court. Considering this admitted payment, the only issue that cropped up was the effect
of payment made by the reinsurers to the petitioner. Therefore, the petitioner's
argument that the respondents had no interest in the reinsurance contract as this is
strictly between the petitioner as insured and the reinsuring company pursuant to
Section 91 (should be Section 98) of the Insurance Code has no basis.

In general a reinsurer, on payment of a loss acquires the same rights by

subrogation as are acquired in similar cases where the original insurer pays
a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd
925).

The rules of practice in actions on original insurance policies are in general

applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the
loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald
Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):

Note that if a property is insured and the owner receives the indemnity from
the insurer, it is provided in said article that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the
amount paid by the insurer does not fully cover the loss, then the aggrieved
party is the one entitled to recover the deficiency. Evidently, under this legal
provision, the real party in interest with regard to the portion of the
indemnity paid is the insurer and not the insured. (Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-
in-fact of the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the
petitioner's complaint as against the respondents for the reason that the petitioner was
not the real party in interest in the complaint and, therefore, has no cause of action
against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors
should not have been dismissed on the premise that the evidence on record shows
that it is entitled to recover from the counter indemnitors. It does not, however, cite any
grounds except its allegation that respondent "Maglanas defense and evidence are
certainly incredible" (p. 12, Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with evidence
to substantiate its finding that the counter-indemnitors are not liable to the petitioner.
The trial court stated:

Apart from the foregoing proposition, the indemnity agreement ceased to

be valid and effective after the execution of the chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts
involved, agreed to issue the bond provided that the same would be
mortgaged to it, but this was not possible because the planes were still in
Japan and could not be mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would be mortgaged to
Pioneer Insurance to cover the bond, and this indemnity agreement would
be cancelled.
The following is averred under oath by Pioneer in the original complaint:

The various conflicting claims over the mortgaged properties

have impaired and rendered insufficient the security under the
chattel mortgage and there is thus no other sufficient security
for the claim sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no
other security for the claim sought to be enforced by this action, which
necessarily means that the indemnity agreement had ceased to have any
force and effect at the time this action was instituted. Sec 2, Rule 129,
Revised Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel

mortgage on the planes and spare parts, no longer has any further action
against the defendants as indemnitors to recover any unpaid balance of the
price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of Pioneer should they make
payments to the latter. Articles 2067 and 2080 of the New Civil Code of the
Philippines.

Independently of the preceding proposition Pioneer's election of the

remedy of foreclosure precludes any further action to recover any unpaid
balance of the price.

SAL or Lim, having failed to pay the second to the eight and last
installments to JDA and Pioneer as surety having made of the payments to
JDA, the alternative remedies open to Pioneer were as provided in Article
1484 of the New Civil Code, known as the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both

by extrajudicial foreclosure and the instant suit. Such being the case, as
provided by the aforementioned provisions, Pioneer shall have no further
action against the purchaser to recover any unpaid balance and any
agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment &
Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.

The operation of the foregoing provision cannot be escaped from through

the contention that Pioneer is not the vendor but JDA. The reason is that
Pioneer is actually exercising the rights of JDA as vendor, having
subrogated it in such rights. Nor may the application of the provision be
validly opposed on the ground that these defendants and defendant
Maglana are not the vendee but indemnitors. Pascual, et al. v. Universal
Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their
maturity dates discharged these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the obligations of Lim, or
SAL extinguish the original obligations thru novations thus discharging the
indemnitors.

The principal hereof shall be paid in eight equal successive

three months interval installments, the first of which shall be
due and payable 25 August 1965, the remainder of which ...
shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and
payable 26th May 1967.

However, at the trial of this case, Pioneer produced a memorandum

executed by SAL or Lim and JDA, modifying the maturity dates of the
obligations, as follows:

The principal hereof shall be paid in eight equal successive

three month interval installments the first of which shall be due
and payable 4 September 1965, the remainder of which ... shall
be due and payable on the 4th day ... of each succeeding
months and the last of which shall be due and payable 4th June
1967.

Not only that, Pioneer also produced eight purported promissory notes
bearing maturity dates different from that fixed in the aforesaid
memorandum; the due date of the first installment appears as October 15,
1965, and those of the rest of the installments, the 15th of each succeeding
three months, that of the last installment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates,

effected twice, were done without the knowledge, much less, would have it
believed that these defendants Maglana (sic). Pioneer's official Numeriano
Carbonel would have it believed that these defendants and defendant
Maglana knew of and consented to the modification of the obligations. But
if that were so, there would have been the corresponding documents in the
form of a written notice to as well as written conformity of these defendants,
and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured by the
indemnity agreement which was thereby also extinguished. Applicable by
 analogy are the rulings of the Supreme Court in the case of Kabankalan
Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum
Co. v. Hizon David, 45 Phil. 532, 538.

Art. 2079. An extension granted to the debtor by the creditor

without the consent of the guarantor extinguishes the guaranty
The mere failure on the part of the creditor to demand payment
after the debt has become due does not of itself constitute any
extension time referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F.
Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer

paid the same. Consequently, Pioneer has no more cause of action to
recover from these defendants, as supposed indemnitors, what it has paid
to JDA. By virtue of an express stipulation in the surety bond, the failure of
JDA to present its claim to Pioneer within ten days from default of Lim or
SAL on every installment, released Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these

defendants thru the indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to

reimbursement from his co-debtors if such payment is made
after the obligation has prescribed or became illegal.

These defendants are entitled to recover damages and attorney's fees from
Pioneer and its surety by reason of the filing of the instant case against
them and the attachment and garnishment of their properties. The instant
action is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No.
84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

 l. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who failed
to incorporate the entity in which they had chosen to invest? How are the
losses to be treated in situations where their contributions to the intended
'corporation' were invested not through the corporate form? This Petition
presents these fundamental questions which we believe were resolved
erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).

These questions are premised on the petitioner's theory that as a result of the failure of
respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim
to incorporate, a de facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or gains of the
venture in proportion to their contribution. The petitioner, therefore, questions the
appellate court's findings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants'

cross-claims in the total amount of P184,878.74 as correctly found by the
trial court, with interest from the filing of the cross-complaints until the
amount is fully paid. Defendant Lim should pay one-half of the said amount
to Bormaheco and the Cervanteses and the other one-half to defendant
Maglana. It is established in the records that defendant Lim had duly
received the amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the ownership of the
subject airplanes and spare parts (Exhibit 58). In addition, the cross-party
plaintiffs incurred additional expenses, hence, the total sum of P
184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed
by the supposed charter and the laws of the state relating thereto and not
by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121,
96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who
attempt, but fail, to form a corporation and who carry on business under the
corporate name occupy the position of partners inter se (Lynch v.
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where
persons associate themselves together under articles to purchase property
to carry on a business, and their organization is so defective as to come
short of creating a corporation within the statute, they become in legal
effect partners inter se, and their rights as members of the company to the
property acquired by the company will be recognized (Smith v. Schoodoc
 Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich.
369). So, where certain persons associated themselves as a corporation
for the development of land for irrigation purposes, and each conveyed
land to the corporation, and two of them contracted to pay a third the
difference in the proportionate value of the land conveyed by him, and no
stock was ever issued in the corporation, it was treated as a trustee for the
associates in an action between them for an accounting, and its capital
stock was treated as partnership assets, sold, and the proceeds distributed
among them in proportion to the value of the property contributed by each
(Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not
necessarily exist, for ordinarily persons cannot be made to assume the
relation of partners, as between themselves, when their purpose is that no
partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct.
442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus, one who takes no part
except to subscribe for stock in a proposed corporation which is never
legally formed does not become a partner with other subscribers who
engage in business under the name of the pretended corporation, so as to
be liable as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation
between certain stockholders and other stockholders, who were also
directors, will not be implied in the absence of an agreement, so as to make
the former liable to contribute for payment of debts illegally contracted by
the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his
failure to appear during the pretrial despite notification. In his answer, the petitioner
denied having received any amount from respondents Bormaheco, the Cervanteses
and Maglana. The trial court and the appellate court, however, found through Exhibit
58, that the petitioner received the amount of P151,000.00 representing the
participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the
subject airplanes and spare parts. The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with
the respondents despite his representations to them. This gives credence to the cross-
claims of the respondents to the effect that they were induced and lured by the
petitioner to make contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement. Maglana alleged in his cross-
claim:
 ... that sometime in early 1965, Jacob Lim proposed to Francisco
Cervantes and Maglana to expand his airline business. Lim was to procure
two DC-3's from Japan and secure the necessary certificates of public
convenience and necessity as well as the required permits for the operation
thereof. Maglana sometime in May 1965, gave Cervantes his share of
P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged
receipt thereof. Cervantes, likewise, delivered his share of the undertaking.
Lim in an undertaking sometime on or about August 9,1965, promised to
incorporate his airline in accordance with their agreement and proceeded to
acquire the planes on his own account. Since then up to the filing of this
answer, Lim has refused, failed and still refuses to set up the corporation or
return the money of Maglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer,

counterclaim, cross-claim and third party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering
defendants to purchase two airplanes and spare parts from Japan which
the latter considered as their lawful contribution and participation in the
proposed corporation to be known as SAL. Arrangements and negotiations
were undertaken by defendant Lim. Down payments were advanced by
defendants Bormaheco and the Cervanteses and Constancio Maglana
(Exh. E- 1). Contrary to the agreement among the defendants, defendant
Lim in connivance with the plaintiff, signed and executed the alleged chattel
mortgage and surety bond agreement in his personal capacity as the
alleged proprietor of the SAL. The answering defendants learned for the
first time of this trickery and misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage (sic) allegedly executed by
defendant Lim, thereby forcing them to file an adverse claim in the form of
third party claim. Notwithstanding repeated oral demands made by
defendants Bormaheco and Cervanteses, to defendant Lim, to surrender
the possession of the two planes and their accessories and or return the
amount advanced by the former amounting to an aggregate sum of P
178,997.14 as evidenced by a statement of accounts, the latter ignored,
omitted and refused to comply with them. (Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which would entitle
the petitioner to a reimbursement of the supposed losses of the proposed corporation.
The record shows that the petitioner was acting on his own and not in behalf of his
other would-be incorporators in transacting the sale of the airplanes and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the
Court of Appeals is AFFIRMED.

SO ORDERED.

G.R. No. L-33580 February 6, 1931

MAXIMILIANO SANCHO, plaintiff-appellant,

vs.
SEVERIANO LIZARRAGA, defendant-appellee.

ROMUALDEZ, J.:

The plaintiff brought an action for the rescission of a partnership contract between
himself and the defendant, entered into on October 15, 1920, the reimbursement by the
latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form
October 15, 1920, with costs, and any other just and equitable remedy against said
defendant.

The defendant denies generally and specifically all the allegations of the complaint which
are incompatible with his special defenses, cross-complaint and counterclaim, setting up
the latter and asking for the dissolution of the partnership, and the payment to him as its
manager and administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to the plaintiff. He also
prays for any other just and equitable remedyThe Court of First Instance of Manila,
having heard the cause, and finding it duly proved that the defendant had not contributed
all the capital he had bound himself to invest, and that the plaintiff had demanded that
the defendant liquidate the partnership, declared it dissolved on account of the expiration
of the period for which it was constituted, and ordered the defendant, as managing
partner, to proceed without delay to liquidate it, submitting to the court the result of the
liquidation together with the accounts and vouchers within the period of thirty days from
receipt of notice of said judgment, without costs.

The plaintiff appealed from said decision making the following assignments of error:

1. In holding that the plaintiff and appellant is not entitled to the rescission of the
partnership contract, Exhibit A, and that article 1124 of the Civil Code is not
applicable to the present case.

2. In failing to order the defendant to return the sum of P50,000 to the plaintiff
with interest from October 15, 1920, until fully paid.
 3. In denying the motion for a new trial.

In the brief filed by counsel for the appellee, a preliminary question is raised purporting
to show that this appeal is premature and therefore will not lie. The point is based on the
contention that inasmuch as the liquidation ordered by the trial court, and the consequent
accounts, have not been made and submitted, the case cannot be deemed terminated
in said court and its ruling is not yet appealable. In support of this contention counsel
cites section 123 of the Code of Civil Procedure, and the decision of this court in the
case of Natividad vs. Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been rendered as ordered by
the trial court, and until they have been either approved or disapproved, the litigation
involved in this action cannot be considered as completely decided; and, as it was held
in said case of Natividad vs .Villarica, also with reference to an appeal taken from a
decision ordering the rendition of accounts following the dissolution of partnership, the
appeal in the instant case must be deemed premature.

But even going into the merits of the case, the affirmation of the judgment appealed from
is inevitable. In view of the lower court's findings referred to above, which we cannot
revise because the parol evidence has not been forwarded to this court, articles 1681
and 1682 of the Civil Code have been properly applied. Owing to the defendant's failure
to pay to the partnership the whole amount which he bound himself to pay, he became
indebted to it for the remainder, with interest and any damages occasioned thereby, but
the plaintiff did not thereby acquire the right to demand rescission of the partnership
contract according to article 1124 of the Code. This article cannot be applied to the case
in question, because it refers to the resolution of obligations in general, whereas article
1681 and 1682 specifically refer to the contract of partnership in particular. And it is a
well known principle that special provisions prevail over general provisions.

By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed
from in full force, without special pronouncement of costs. So ordered.
 EN BANC

G.R. No. L-18703 August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL
BANKING CORPORATION, petitioners-appellants.

ROMUALDEZ, J.:

The record of this proceeding having been transmitted to this court by virtue of an appeal
taken herein, a motion was presented by the appellants praying this court that this case
be considered purely a moot question now, for the reason that subsequent to the
decision appealed from, the partnership Campos Rueda & Co., voluntarily filed an
application for a judicial decree adjudging itself insolvent, which is just what the herein
petitioners and appellants tried to obtain from the lower court in this proceeding.

The motion now before us must be, and is hereby, denied even under the facts stated
by the appellants in their motion aforesaid. The question raised in this case is not purely
moot one; the fact that a man was insolvent on a certain day does not justify an inference
that he was some time prior thereto.

Proof that a man was insolvent on a certain day does not justify an inference that
he was on a day some time prior thereto. Many contingencies, such as unwise
investments, losing contracts, misfortune, or accident, might happen to reduce a
person from a state of solvency within a short space of time. (Kimball vs.
Dresser, 98 Me., 519; 57 Atl. Rep., 767.)

A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge
Campos Rueda & Co. insolvent in December, 1921, as prayed for in this case, and
another to declare it insolvent in July, 1922, as stated in the motion.

Turning to the merits of this appeal, we find that this limited partnership was, and is,
indebted to the appellants in various sums amounting to not less than P1,000, payable
in the Philippines, which were not paid more than thirty days prior to the date of the filing
by the petitioners of the application for involuntary insolvency now before us. These facts
were sufficient established by the evidence.

The trial court denied the petition on the ground that it was not proven, nor alleged, that
the members of the aforesaid firm were insolvent at the time the application was filed;
and that was said partners are personally and solidarily liable for the consequence of the
transactions of the partnership, it cannot be adjudged insolvent so long as the partners
are not alleged and proven to be insolvent. From this judgment the petitioners appeal to
this court, on the ground that this finding of the lower court is erroneous.

The fundamental question that presents itself for decision is whether or not a limited
partnership, such as the appellee, which has failed to pay its obligation with three
creditors for more than thirty days, may be held to have committed an act of insolvency,
and thereby be adjudged insolvent against its will.

Unlike the common law, the Philippine statutes consider a limited partnership as a
juridical entity for all intents and purposes, which personality is recognized in all its acts
and contracts (art. 116, Code of Commerce). This being so and the juridical personality
of a limited partnership being different from that of its members, it must, on general
principle, answer for, and suffer, the consequence of its acts as such an entity capable
of being the subject of rights and obligations. If, as in the instant case, the limited
partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors for
a period of more than thirty days, which failure constitutes, under our Insolvency Law,
one of the acts of bankruptcy upon which an adjudication of involuntary insolvency can
be predicated, this partnership must suffer the consequences of such a failure, and must
be adjudged insolvent. We are not unmindful of the fact that some courts of the United
States have held that a partnership may not be adjudged insolvent in an involuntary
insolvency proceeding unless all of its members are insolvent, while others have
maintained a contrary view. But it must be borne in mind that under the American
common law, partnerships have no juridical personality independent from that of its
members; and if now they have such personality for the purpose of the insolvency law,
it is only by virtue of general law enacted by the Congress of the United States on July
1, 1898, section 5, paragraph (h), of which reads thus:

In the event of one or more but not all of the members of a partnership being
adjudged bankrupt, the partnership property shall not be administered in
bankruptcy, unless by consent of the partner or partners not adjudged bankrupt;
but such partner or partners not adjudged bankrupt shall settle the partnership
business as expeditiously as its nature will permit, and account for the interest of
the partner or partners adjudged bankrupt.

The general consideration that these partnership had no juridical personality and the
limitations prescribed in subsection (h) above set forth gave rise to the conflict noted in
American decisions, as stated in the case of In re Samuels (215 Fed., 845), which
mentions the two apparently conflicting doctrines, citing one from In re Bertenshaw (157
Fed., 363), and the other from Francis vs. McNeal (186 Fed., 481).

But there being in our insolvency law no such provision as that contained in section 5 of
said Act of Congress of July 1, 1898, nor any rule similar thereto, and the juridical
personality of limited partnership being recognized by our statutes from their formation
in all their acts and contracts the decision of American courts on this point can have no
application in this jurisdiction, nor we see any reason why these partnerships cannot be
adjudged bankrupt irrespective of the solvency or insolvency of their members, provided
the partnership has, as such, committed some of the acts of insolvency provided in our
law. Under this view it is unnecessary to discuss the other points raised by the parties,
although in the particular case under consideration it can be added that the liability of
the limited partners for the obligations and losses of the partnership is limited to the
amounts paid or promised to be paid into the common fund except when a limited partner
should have included his name or consented to its inclusion in the firm name (arts. 147
and 148, Code of Commerce).

Therefore, it having been proven that the partnership Campos Rueda & Co. failed for
more than thirty days to pay its obligations to the petitioners the Pacific Commercial Co.
the Asiatic Petroleum Co. and the International Banking Corporation, the case comes
under paragraph 11 of section 20 of Act No. 1956, and consequently the petitioners have
the right to a judicial decree declaring the involuntary insolvency of said partnership.

Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited
partnership Campos Rueda & Co. is and was on December 28, 1921, insolvent and
liable for having failed for more than thirty days to meet its obligations with the three
petitioners herein, and it is ordered that this proceeding be remanded to the Court of
First Instance of Manila with instruction to said court to issue the proper decrees under
section 24 of Act No. 1956, and proceed therewith until its final disposition.

It is so ordered without special finding as to costs.

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU
SHIAN JENG and CHEN HO-FU, respondents.

FELICIANO, J.:

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name
of "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was
originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic
of China (Taiwan), as limited partners. The partnership business consisted of exploiting
a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984
with the Cruz spouses. 1 The partnership had its main office in Makati, Metropolitan
Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as

Assistant General Manager with a monthly salary of P4,000.00. According to petitioner
Yu, however, he actually received only half of his stipulated monthly salary, since he
had accepted the promise of the partners that the balance would be paid when the firm
shall have secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the business; he had overall supervision of
the workers at the marble quarry in Bulacan and took charge of the preparation of
papers relating to the exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to
private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to Willy Co. Between
Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great
bulk of the partnership interest. The partnership now constituted solely by Willy Co and
Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they
moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A
Supplement to the Memorandum Agreement relating to the operation of the marble
quarry was entered into with the Cruz spouses in February of 1988.2 The actual
operations of the business enterprise continued as before. All the employees of the
partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from
Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for
work and there met private respondent Willy Co for the first time. Petitioner was
informed by Willy Co that the latter had bought the business from the original partners
and that it was for him to decide whether or not he was responsible for the obligations
of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not
allowed to work anymore in the Jade Mountain business enterprise. His unpaid
salaries remained unpaid.3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and

recovery of unpaid salaries accruing from November 1984 to October 1988, moral and
exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the
other private respondents. The partnership and Willy Co denied petitioner's charges,
contending in the main that Benjamin Yu was never hired as an employee by the
present or new partnership.4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement
and awarded him his claim for unpaid salaries, backwages and attorney's fees.5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision
of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and
Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his original position as Assistant General
Manager, and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined to retain him in his former
managerial position or any other position. Finally, the NLRC held that Benjamin Yu's
claim for unpaid wages should be asserted against the original members of the
preceding partnership, but these though impleaded had, apparently, not been served
with summons in the proceedings before the Labor Arbiter.6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to
set aside and annul the Resolution of the NLRC as a product of grave abuse of
discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a
partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims,
notwithstanding changes in the identities of the partners. Consequently, the
employment contract between Benjamin Yu and the partnership Jade Mountain could
not have been affected by changes in the latter's membership.7
Two (2) main issues are thus posed for our consideration in the case at bar: (1)
whether the partnership which had hired petitioner Yu as Assistant General Manager
had been extinguished and replaced by a new partnerships composed of Willy Co and
Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence,
whether petitioner Yu could nonetheless assert his rights under his employment
contract as against the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that
the legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired petitioner in 1984 and the emergence
of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware —
is found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil
Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of

the partners caused by any partner ceasing to be associated in the carrying
on as distinguished from the winding up of the business. (Emphasis
supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act

in good faith, when no definite term or particular
undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the

partners, where the circumstances do not permit a
dissolution under any other provision of this article,
by the express will of any partner at any time;

xxx xxx xxx

(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the
original partnership interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners who had originally
owned such 82% interest, was enough to constitute a new partnership.

The occurrence of events which precipitate the legal consequence of dissolution of a

partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership
persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the business
of the old partnership was simply continued by the new partners, without the old
partnership undergoing the procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding partnership, and continued using the old name of
Jade Mountain Products Company Limited, without winding up the business affairs of
the old partnership, paying off its debts, liquidating and distributing its net assets, and
then re-assembling the said assets or most of them and opening a new business
enterprise. There were, no doubt, powerful tax considerations which underlay such an
informal approach to business on the part of the retiring and the incoming partners. It is
not, however, necessary to inquire into such matters.

What is important for present purposes is that, under the above described situation, not
only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself
which continued the business of the old, dissolved, one, are liable for the debts of the
preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al,8 the Court held that
under facts very similar to those in the case at bar, a withdrawing partner remains
liable to a third party creditor of the old partnership.9 The liability of the new
partnership, upon the other hand, in the set of circumstances obtaining in the case at
bar, is established in Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are
also creditors of the person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when
any partner retires and assigns (or the representative of the deceased
partner assigns) his rights in partnership property to two or more of the
partners, or to one or more of the partners and one or more third persons, if
the business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article, with the
consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the
debts and who continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and remaining

partners continue the business under the provisions of article 1837, second
paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;

(6) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the partnership
affairs;

The liability of a third person becoming a partner in the partnership

continuing the business, under this article, to the creditors of the dissolved
partnership shall be satisfied out of the partnership property only, unless
there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any

conditions set forth in this article the creditors of the retiring or deceased
partner or the representative of the deceased partner, have a prior right to
any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business on
account of the retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for such interest
or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set
assignment on the ground of fraud.
 xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the
new Jade Mountain which continued the business of the old one without liquidation of
the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any
claim of any retired or previous partner insofar as such retired partner's interest in the
dissolved partnership is concerned. It is not necessary for the Court to determine under
which one or mare of the above six (6) paragraphs, the case at bar would fall, if only
because the facts on record are not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that under Article 1840 above,
Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims
relating to his employment with the previous partnership, against the new Jade
Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to
appoint and hire a new general or assistant general manager to run the affairs of the
business enterprise take over. An assistant general manager belongs to the most
senior ranks of management and a new partnership is entitled to appoint a top
manager of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause. We think that the precise authorized
cause for termination in the case at bar was redundancy. 10 The new partnership had
its own new General Manager, apparently Mr. Willy Co, the principal new owner
himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position
as Assistant General Manager thus became superfluous or redundant. 11 It follows that
petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for
each year of service that he had rendered to the old partnership, a fraction of at least
six (6) months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in
its employ, we consider that Benjamin Yu was very shabbily treated by the new
partnership. The old partnership certainly benefitted from the services of Benjamin Yu
who, as noted, previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself and therefore, the
new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note
that the new partnership did not try to suggest that there was any cause consisting of
some blameworthy act or omission on the part of Mr. Yu which compelled the new
partnership to terminate his services. Nonetheless, the new Jade Mountain did not
notify him of the change in ownership of the business, the relocation of the main office
of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of
control of operations. The treatment (including the refusal to honor his claim for unpaid
wages) accorded to Assistant General Manager Benjamin Yu was so summary and
cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade
Mountain may legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of this case,
believes that an indemnity for moral damages in the amount of P20,000.00 is proper
and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal

rate of six percent (6%) per annum on the amount of unpaid wages, and of his
separation pay, computed from the date of promulgation of the award of the Labor
Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to
litigation to protect his rights in the premises, he is entitled to attorney's fees in the
amount of ten percent (10%) of the total amount due from private respondent Jade
Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE
COURSE, the Comment filed by private respondents is treated as their Answer to the
Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is
hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring
private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall
be computed at the rate of P2,000.00 per month multiplied by
thirty-six (36) months (November 1984 to December 1987) in
the total amount of P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly

pay multiplied by three (3) years of service or a total of
P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on

items (a) and (b) above, commencing on 26 December 1989
and until fully paid; and

(e) ten percent (10%) attorney's fees on the total amount due
from private respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.

G.R. No. L-14606 April 28, 1960

LAGUNA TRANSPORTATION CO., INC., petitioner-appellant,

vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.

BARRERA, J.:

On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of
First Instance of Laguna petition praying that an order be issued by the court declaring
that it is not bound to register as a member of respondent Social Security System and,
therefore, not obliged to pay to the latter the contributions required under the Social
Security Act.1 To this petition, respondent filed its answer on February 11, 1958 praying
for its dismissal due to petitioner's failure to exhaust administrative remedies, and for a
declaration that petitioner is covered by said Act, since the latter's business has been in
operation for at least 2 years prior to September 1, 1957.

On February 11, 1958, respondent filed a motion for preliminary hearing on its defense
that petitioner failed to exhaust administrative remedies. When the case was called for
preliminary hearing, it was postponed by agreement of the parties. Subsequently, it was
set for trial. On the date of the trial, the parties agreed to present, in lieu of any other
evidence, a stipulation of facts, which they did on May 27, 1958, as follows:

1. That petitioner is a domestic corporation duly organized and existing under the
laws of the Philippines, with principal place of business at Biñan, Laguna;

2. That respondent is an agency created under Republic Act No. 1161, as

amended by Republic Act No. 1792, with the principal place of business at the
new GSIS Bldg., corner Arroceros and Concepcion Streets, Manila, where it may
be served with summons;

3. That respondent has served notice upon the petitioner requiring it to register
as member of the System and to remit the premiums due from all the employees
of the petitioner and the contribution of the latter to the System beginning the
month of September, 1957;

4. That sometime in 1949, the Biñan Transportation Co., a corporation duly

registered with the Securities and Exchange Commission, sold part of the lines
and equipment it operates to Gonzalo Mercado, Artemio Mercado, Florentino
Mata and Dominador Vera Cruz;
5. That after the sale, the said vendees formed an unregistered partnership
under the name of Laguna Transportation Company which continued to operate
the lines and equipment bought from the Biñan Transportation Company, in
addition to new lines which it was able to secure from the Public Service
Commission;

6. That the original partners forming the Laguna Transportation Company, with
the addition of two new members, organized a corporation known as the Laguna
Transportation Company, Inc., which was registered with the Securities and
Exchange Commission on June 20, 1956, and which corporation is the plaintiff
now in this case;

7. That the incorporators of the Laguna Transportation Company, Inc., and their
corresponding shares are as follows:

Name No. of Amount Amount

Shares Subscribed Paid
Dominador 333 P33,300.00 P9,160.81
Cruz shares
Maura 333 33,300.00 9,160.81
Mendoza shares
Gonzalo 66 6,600.00 1,822.49
Mercado shares
Artemio 94 9,400.00 2,565.90
Mercado shares
Florentino 110 11,000.00 3,021.54
Mata shares
Sabina 64 6,400.00 1,750.00
Borja shares
1,000 P100,000.00 P27,481.55
shares

8. That the corporation continued the same transportation business of the

unregistered partnership;

9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . . and
a supplemental Information Sheet . . .;
 10. That prior to November 11, 1957, plaintiff requested for exemption from
coverage by the System on the ground that it started operation only on June 20,
1956, when it was registered with the Securities and Exchange Commission but
on November 11, 1957, the Social Security System notified plaintiff that it was
covered;

11. On November 14, 1957, plaintiff through counsel sent a letter to the Social
Security System contesting the claim of the System that plaintiff was covered, . . .

12. On November 27, 1957, Carlos Sanchez, Manager of the Production

Department of the respondent System for and in behalf of the Acting
Administrator, informed plaintiff that plaintiff's business has been in actual
operation for at least two years, . . .

On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered
a decision the dispositive part of which reads:

Wherefore, the Court is of the opinion and so declares that the petitioner was an
employer engaged in business as common carrier which had been in operation
for at least two years prior to the enactment of Republic Act No. 1161, as
amended by Republic Act 1792 and by virtue thereof, it was subject to
compulsory coverage under said law. . . .

From this decision, petitioner appealed directly to us, raising purely questions of law.

Petitioner claims that the lower court erred in holding that it is an employer engaged in
business as a common carrier which had been in operation for at least 2 years prior to
the enactment of the Social Security Act and, therefore, subject to compulsory coverage
thereunder.

Section 9 of the Social Security Act, in part, provides:

SEC. 9 Compulsory Coverage. — Coverage in the System shall be compulsory

upon all employees between the ages of sixteen and sixty years, inclusive, if they
have been for at least six months in the service of an employer who is a member
of the System. Provided, That the Commission may not compel any employer to
become a member of the System unless he shall have been in operation for at
least two years . . . . (Italics supplied.).

It is not disputed that the Laguna Transportation Company, an unregistered partnership

composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador
Vera Cruz, commenced the operation of its business as a common carrier on April 1,
1949. These 4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later
converted the partnership into a corporate entity, by registering its articles of
incorporation with the Securities and Exchange Commission on June 20, 1956. The firm
name "Laguna Transportation Company" was not altered, except with the addition of the
word "Inc." to indicate that petitioner was duly incorporated under existing laws. The
corporation continued the same transportation business of the unregistered partnership,
using the same lines and equipment. There was, in effect, only a change in the form of
the organization of the entity engaged in the business of transportation of passengers.
Hence, said entity as an employer engaged in business, was already in operation for at
least 3 years prior to the enactment of the Social Security Act on June 18, 1954 and for
at least two years prior to the passage of the amendatory act on June 21, 1957. Petitioner
argues that, since it was registered as a corporation with the Securities and Exchange
Commission only on June 20, 1956, it must be considered to have been in operation
only on said date. While it is true that a corporation once formed is conferred a juridical
personality separate and district from the persons composing it, it is but a legal fiction
introduced for purposes of convenience and to subserve the ends of justice. The concept
cannot be extended to a point beyond its reasons and policy, and when invoked in
support of an end subversive of this policy, will be disregarded by the courts. (13 Am.
Jur. 160.)

If any general rule can be laid down, in the present state of authority, it is that a
corporation will be looked upon as a legal entity as a general rule, and until
sufficient reason to the contrary appears; but, when the motion of legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of persons. (1 Fletcher
Cyclopedia Corporations [Perm. Ed.] 135-136; U.S. Milwaukee Refrigeration
Transit Co., 142 Fed. 247, cited in Koppel Philippines, Inc. vs. Yatco, 43 Off.
Gaz., 4604.)

To adopt petitioner's argument would defeat, rather than promote, the ends for which
the Social Security Act was enacted. An employer could easily circumvent the statute by
simply changing his form of organization every other year, and then claim exemption
from contribution to the System as required, on the theory that, as a new entity, it has
not been in operation for a period of at least 2 years. the door to fraudulent circumvention
of the statute would, thereby, be opened.

Moreover, petitioner admitted that as an employer engaged in the business of a common

carrier, its operation commenced on April 1, 1949 while it was a partnership and
continued by the corporation upon its formation on June 20, 1956. Unlike in the
conveyance made by the Biñan Transportation Company to the partners Gonzalo
Mercado, Artemio Mercado, Florentino Mata, and Dominador Vera Cruz, no mention
whatsoever is made either in the pleadings or in the stipulation of facts that the lines and
equipment of the unregistered partnership had been sold and transferred to the
corporation, petitioner herein. This omission, to our mind, clearly indicates that there
was, in fact, no transfer of interest, but a mere change in the form of the organization of
the employer engaged in the transportation business, i.e., from an unregistered
partnership to that of a corporation. As a rule, courts will look to the substance and not
to the form.(Colonial Trust Co. vs. Montolo Eric Works, 172 Fed. 310; Metropolitan
Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612; Arnold vs. Willits, et al., 44 Phil.,
634; 1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.)

Finally, the weight of authority supports the view that where a corporation was formed
by, and consisted of members of a partnership whose business and property was
conveyed and transferred to the corporation for the purpose of continuing its business,
in payment for which corporate capital stock was issued, such corporation is presumed
to have assumed partnership debts, and is prima facie liable therefor. (Stowell vs.
Garden City News Corps., 57 P. 2d 12; Chicago Smelting & Refining Corp. vs. Sullivan,
246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason for the rule
is that the members of the partnership may be said to have simply put on a new coat, or
taken on a corporate cloak, and the corporation is a mere continuation of the partnership.
(8 Fletcher Cyclopedia Corporations [Perm. Ed.] 402-411.)

Wherefore, finding no error in the judgment of the court a quo, the same is hereby
affirmed, with costs against petitioner-appellant. So ordered.
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO
W. LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO
T. LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and
its Resolution2 denying petitioners’ motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic
corporation engaged in real estate development. Rafaelito W. Lopez is its President
and Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin
and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2)
adjoining parcels of land, with a combined area of 30,000 square meters, located in
Tagaytay City and covered by Transfer Certificate of Title (TCT) No. T-108484 of the
Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity
as President, entered into a Joint Venture Agreement5 (JVA) for the development of
the aforementioned property into a residential subdivision to be known as "Tagaytay
Garden Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute
the two parcels of land as their share in the joint venture. For its part, Primelink
undertook to contribute money, labor, personnel, machineries, equipment, contractor’s
pool, marketing activities, managerial expertise and other needed resources to develop
the property and construct therein the units for sale to the public. Specifically, Primelink
bound itself to accomplish the following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs,
structural and architectural plans, site development plans, and such other need plans
in accordance with existing laws and the rules and regulations of appropriate
government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land
in preparation for the construction and sale of the different types of units (single-
detached, duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force
majeure or fortuitous event or by competent authority, or other unavoidable
circumstances beyond the DEVELOPER’S control, not to exceed three years from the
date of the signing of this Joint Venture Agreement, except the installation of the
electrical facilities which is solely MERALCO’S responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers,
support personnel and marketing staff, to handle all services related to land and
housing development (administrative and construction) and marketing (sales,
advertising and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER
can draw allowances or make advances not exceeding a total of twenty percent (20%)
of the net revenue for that period, on the basis of sixty percent (60%) for the
DEVELOPER and forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net
revenue for the first two years, in order to have sufficient reserves or funds to protect
and/or guarantee the construction and completion of the different types of units
mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to
drawing allowances and/or advances equivalent to sixty percent (60%) and forty
percent (40%), respectively, of the total net revenue or income of the sale of the units.7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or
income of the Joint Venture project, after deducting all expenses incurred in connection
with the land development (such as administrative management and construction
expenses), and marketing (such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or
income of the Joint Venture project, after deducting all the above-mentioned
expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the
project:
SALES-INCOME-COST PROJECTION
lawphil.net
SELLING PRICE A2 1,260,000 - C1 3,500,000
COST PRICE = B2 960,000 -
DIFFERENCE 1,940,000 x 24 = C2 1,400,000
INCOME = 1,540,000 x 24 =
CLUSTER: P 46,560,000.00 = 2,100,000 x 16
A1 3,200,000 TWIN: 36,960,000.00 =
- B1 2,500,000 SINGLE: 33,600,000.00
ROW-TYPE ₱138,720,000.00 COMPUTATION
TOWNHOMES: OF ADD’L.
(GROSS) x .03069 x 48
INCOME ON
D1 1,600,000
Total Cash Price INTEREST =
- (A1+B1+C1+D1)
TCP x 30% D/P P238,409,740
D2 700,000 =
=
= ₱231,200,000.00
P 69,360,000 238,409,740.00
900,000 x 24
Total Amount
= Total Building (TCP + int. earn.)
P 69,360,000.00
Expense
21,600,000.00 P307,769,740.00
(A2+B2+C2+D2) Balance = 70%
= =
92,480,000.00 161,840,000
EXPENSES:
less: A P Commission Admin. & 4,624,000.0
92,480,000. (8% of TCP) Mgmt. 0
Building
00 expenses
expenses 18,496,000. D
(2% of TCP)
B 00
Advertising
C & Promo
exp. (2% of E spaces and cost not incl. 12,000,000.
TCP) Amenities Housing) 00
Building
(Developme 400 x
4,624,000.0 expenses
nt 30,000
0 for the open
sqms.
TOTAL EXPENSES (A+B+C+D+E)

P132,224,000.00
RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.)
P307,769,740.00

less:
132,224,000.00
Total Expenses
P175,545,740.009
The parties agreed that any unsettled or unresolved misunderstanding or conflicting
opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
Voluntary Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow
agreement. Conformably with the escrow agreement, the owner’s duplicate of the title
was deposited with the China Banking Corporation.11 However, Primelink failed to
immediately secure a Development Permit from Tagaytay City, and applied the permit
only on August 30, 1995. On October 12, 1995, the City issued a Development Permit
to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that
Primelink comply with its obligations under the JVA, otherwise the appropriate action
would be filed against it to protect their rights and interests. This impelled the officers of
Primelink to meet with the Lazatins and enabled the latter to review its business
records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed
Primelink that they had decided to rescind the JVA effective upon its receipt of the said
letter. The Lazatins demanded that Primelink cease and desist from further developing
the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court
(RTC) of Tagaytay City, Branch 18, a complaint for rescission accounting and
damages, with prayer for temporary restraining order and/or preliminary injunction
against Primelink and Lopez. The case was docketed as Civil Case No. TG-1776.
Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from
the execution of the JVA and the delivery of the title and possession of the land to
defendants, the land development aspect of the project had not yet been completed,
and the construction of the housing units had not yet made any headway, based on the
following facts, namely: (a) of the 50 housing units programmed for Phase I, only the
following types of houses appear on the site in these condition: (aa) single detached,
one completed and two units uncompleted; (bb) cluster houses, one unit nearing
completion; (cc) duplex, two units completed and two units unfinished; and (dd) row
houses, two units, completed; (b) in Phase II thereof, all that was done by the
defendants was to grade the area; the units so far constructed had been the object of
numerous complaints by their owners/purchasers for poor workmanship and the use of
sub-standard materials in their construction, thus, undermining the project’s
marketability. Plaintiffs also alleged that defendants had, without justifiable reason,
completely disregarded previously agreed accounting and auditing procedures, checks
and balances system installed for the mutual protection of both parties, and the
scheduled regular meetings were seldom held to the detriment and disadvantage of
plaintiffs. They averred that they sent a letter through counsel, demanding compliance
of what was agreed upon under the agreement but defendants refused to heed said
demand. After a succession of letters with still no action from defendants, plaintiffs sent
a letter on October 22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted
by defendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as their
net share in the joint venture project; to date, however, after almost four (4) years and
despite the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net
revenue during the first two (2) years (on the basis of the 60%-40% sharing) and their
full 40% share thereafter, defendants had yet to deliver these shares to plaintiffs which
by conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary
restraining order be forthwith issued enjoining the defendants to immediately stop their
land development, construction and marketing of the housing units in the aforesaid
project; after due proceedings, to issue a writ of preliminary injunction enjoining and
prohibiting said land development, construction and marketing of housing units,
pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as
expenses incurred and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty
Million Pesos (P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
Two Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount
equivalent to ten percent (10%) of the total amount due as and for attorney’s fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.16
Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground
that plaintiffs’ complaint was premature, due to their failure to refer their complaint to a
Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No.
876 before filing their complaint in the RTC. They prayed for the dismissal of the
complaint under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited
Rules of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to
arbitrate, and then asking the parties to resolve their controversies, pursuant to the
Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the
arbitration, and
d) denying the plaintiffs’ prayer for the issuance of a temporary restraining order or writ
of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the
complaint, defendants, invoking their counsel’s heavy workload, prayed for a 15-day
extension18 within which to file their answer. The additional time prayed for was
granted by the RTC.19 However, instead of filing their answer, defendants prayed for a
series of 15-day extensions in eight (8) successive motions for extensions on the same
justification.20 The RTC again granted the additional time prayed for, but in granting
the last extension, it warned against further extension.21 Despite the admonition,
defendants again moved for another 15-day extension,22 which, this time, the RTC
denied. No answer having been filed, plaintiffs moved to declare the defendants in
default,23 which the RTC granted in its Order24 dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with
Counterclaim and Opposition to the Prayer for the Issuance of a Writ of Preliminary
Injunction."25 On July 8, 1998, defendants filed a Motion to Set Aside the Order of
Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14, 1998, the
RTC denied defendants’ motion to set aside the order of default and ordered the
reception of plaintiffs’ evidence ex parte. Defendants filed a motion for
reconsideration29 of the July 14, 1998 Order, which the RTC denied in its Order30
dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring
them in default, as well as the Order denying their motion to set aside the order of
default, alleging that these were contrary to facts of the case, the law and
jurisprudence.31 On September 16, 1999, the appellate court issued a Resolution32
dismissing the appeal on the ground that the Orders appealed from were interlocutory
in character and, therefore, not appealable. No motion for reconsideration of the Order
of the dismissal was filed by defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary
evidence. On April 17, 2000, the RTC rendered a Decision, the dispositive part of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this
complaint;
2. Ordering the defendants to return possession, including all improvements therein, of
the real estate property belonging to the plaintiffs which is described in, and covered by
Transfer Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and
located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have
been executed, prepared and retained in connection with any contract to sell or deed
of sale of all lots/units sold during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing
their share of the net income of the P2,603,810.64 as of September 30, 1995, as
stipulated in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount of
P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developer’s (defendant) undertakings, as
well as paragraph III and paragraph V of the JVA. These violations are not limited to
those made against the plaintiffs alone as it appears that some of the unit buyers
themselves have their own separate gripes against the defendants as typified by the
letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs.
Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as
submarkings, pp. 60 to 62, TSN August 6, 1998) this court has observed, and is thus
convinced, that a pattern of what appears to be a scheme or plot to reduce and
eventually blot out the net income generated from sales of housing units by
defendants, has been established. Exhibit "P-2" is explicit in declaring that, as of
September 30, 1995, the joint venture project earned a net income of about
P2,603,810.64. This amount, however, was drastically reduced in a subsequent
financial report submitted by the defendants to P1,954,216.39. Shortly thereafter, and
to the dismay of the plaintiffs, the defendants submitted an income statement and a
balance sheet (Exhibits "R" and "R-1") indicating a net loss of P5,122,906.39 as of
June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have
received the sum of P1,041,524.26 representing their 40% share under paragraph II
and V of the JVA. But this was not to be so. Even before the plaintiffs could get hold of
their share as indicated above, the defendants closed the chance altogether by
declaring a net loss. The court perceives this to be one calculated coup-de-grace that
would put to thin air plaintiffs’ hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way
the defendants treated the JVA and the manner by which they handled the project itself
vis-à-vis their partners, the plaintiffs herein, there is bound to be certain conflict as the
latter repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other
recourse but to file the present action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging
defendants’ dilatory tactics for its allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor
of plaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution
pending appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST
REFERRING THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876),
CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER
THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO
PORTLAND CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION
COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING
APPEAL EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO
JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINK’S STRONG OPPOSITION
THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO
QUASH THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS
JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT
ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND
HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE
APPELLEES’ FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE
SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE
RIGHT TO TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR
THEMSELVES ALL THE EXISTING IMPROVEMENTS INTRODUCED THEREIN BY
PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED
FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE
HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE
PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKET
VALUE OF APPELLEES’ RAW, UNDEVELOPED AND UNPRODUCTIVE LAND
(CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY
MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE HORIZONTAL AND
VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES
TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification,
the appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial
Court of Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No.
TG-1776, is hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848
held for safekeeping by Chinabank pursuant to the Escrow Agreement is ordered
released for return to the plaintiffs-appellees and conformably with the affirmed
decision, the cancellation by the Register of Deeds of Tagaytay City of whatever
annotation in TCT No. 10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation,41 the appellate court ruled that, under Philippine law, a joint venture is a
form of partnership and is to be governed by the laws of partnership. The aggrieved
parties filed a motion for reconsideration,42 which the CA denied in its Resolution43
dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND
REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN
ORDERING THE RETURN TO THE RESPONDENTS OF THE PROPERTY WITH ALL
IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE
RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES
INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE
ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS
FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE
AND UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN
RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON
JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF
CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL
APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which unconditionally
awards to respondents "all improvements" on the project without requiring them to pay
the value thereof or to reimburse Primelink for all expenses incurred therefore is
inherently and essentially illegal and confiscatory, oppressive and unconscionable,
contrary to the tenets of good human relations, and will allow respondents to unjustly
enrich themselves at Primelink’s expense. At the time respondents contributed the two
parcels of land, consisting of 30,000 square meters to the joint venture project when
the JVA was signed on March 10, 1994, the said properties were worth not more than
P500.00 per square meter, the "price tag" agreed upon the parties for the purpose of
the JVA. Moreover, before respondents rescinded the JVA sometime in
October/November 1997, the property had already been substantially developed as
improvements had already been introduced thereon; petitioners had likewise incurred
administrative and marketing expenses, among others, amounting to more or less
P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be
declared the owners and entitled to the possession of the improvements made by
petitioner Primelink on the property; neither did they adduce evidence to prove their
entitlement to said improvements. It follows, petitioners argue, that respondents were
not entitled to the improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only
to the extent necessary to cover the damages caused and that, under Article 1385 of
the same Code, rescission creates the obligation to return the things which were not
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be effected only when respondents can return whatever they may
be obliged to return. Respondents who sought the rescission of the JVA must place
petitioner Primelink in the status quo. They insist that respondents cannot rescind and,
at the same time, retain the consideration, or part of the consideration received under
the JVA. They cannot have the benefits of rescission without assuming its burden. All
parties must be restored to their original positions as nearly as possible upon the
rescission of a contract. In the event that restoration to the status quo is impossible,
rescission may be granted if the Court can balance the equities and fashion an
appropriate remedy that would be equitable to both parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their
claim for reimbursement because "[w]hat matters is that the improvements exist and
they cannot be denied."46 Moreover, they point out, the ruling of this Court in Aurbach
v. Sanitary Wares Manufacturing Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did
not specifically pray for their takeover of the property and for the possession of the
improvements on the parcels of land, nevertheless, respondents were entitled to said
relief as a necessary consequence of the ruling of the trial court ordering the rescission
of the JVA. The appellate court cited the ruling of this Court in the Aurbach case and
Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general
principles of partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code
deal with rescissible contracts. What applies is Article 1191 of the New Civil Code,
which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because,
as found by the RTC and the CA, it was petitioner Primelink that enriched itself at the
expense of respondents. Respondents reiterate the ruling of the CA, and argue as
follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove
and did not pray that they are and should be entitled to take over the development of
the project, and that the improvements and existing structures which were introduced
by PRIMELINK after spending more or less Forty Million Pesos – be awarded to them.
They merely asked in the complaint that the joint venture agreement be rescinded, and
that the parcels of land they contributed to the project be returned to them.
PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to return
possession of the real estate property belonging to the LAZATINs including all
improvements thereon was not a judgment that was different in kind than what was
prayed for by the LAZATINs. The order to return the property with all the improvements
thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general
principles of partnership may be resorted to. In Aurbach v. Sanitary Wares
Manufacturing Corporation, the Supreme Court discussed the following points
regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements are similar – community of
interest in the business, sharing of profits and losses, and a mutual right of control.
(Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043
[1939]; Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The
main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the
joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v.
Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This
observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that,
under Philippine law, a joint venture is a form of partnership and should thus be
governed by the laws of partnership. The Supreme Court has, however, recognized a
distinction between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may, however, engage in a joint venture with
others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez –
Campos Comments, Notes and Selected Cases, Corporation Code 1981) (Emphasis
Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the
words of the court a quo, was a pattern of what appears to be a scheme or plot to
reduce and eventually blot out the net incomes generated from sales of housing units
by the defendants. Under Article 1838 of the Civil Code, where the partnership contract
is rescinded on the ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any other right is entitled to
a lien on, or right of retention of, the surplus of the partnership property after satisfying
the partnership liabilities to third persons for any sum of money paid by him for the
purchase of an interest in the partnership and for any capital or advance contributed by
him. In the instant case, the joint venture still has outstanding liabilities to third parties
or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between
Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat
should also be returned to the LAZATINs as a necessary consequence of the order of
rescission of contract. The reason for the existence of the Escrow Agreement has
ceased to exist when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have
suffered. They likewise stress that they did not enrich themselves at the expense of
petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the
improvements even if their share in the P1,041,524.26 of the net income of the
property and the sale of the land were to be deducted from the value of the
improvements, plus administrative and marketing expenses in the total amount of
P40,000,000.00. Petitioners will still be entitled to an accounting from respondents.
Respondents cannot deny the existence and nature of said improvements as they are
visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the
possession of the parcels of land covered by the JVA and the improvements thereon
introduced by petitioners as their contribution to the JVA; (2) whether petitioners are
entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in
their complaint below that possession of the improvements on the parcels of land
which they contributed to the JVA be transferred to them. Respondents made a
specific prayer in their complaint that, upon the rescission of the JVA, they be placed in
possession of the parcels of land subject of the agreement, and for other "reliefs and
such other remedies as are just and equitable in the premises." However, the trial court
was not precluded from awarding possession of the improvements on the parcels of
land to respondents in its decision. Section 2(c), Rule 7 of the Rules of Court provides
that a pleading shall specify the relief sought but it may add as general prayer for such
further or other relief as may be deemed just and equitable. Even without the prayer for
a specific remedy, proper relief may be granted by the court if the facts alleged in the
complaint and the evidence introduced so warrant.50 The court shall grant relief
warranted by the allegations and the proof even if no such relief is prayed for.51 The
prayer in the complaint for other reliefs equitable and just in the premises justifies the
grant of a relief not otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the
parcels of land and the improvements on the said parcels of land. It bears stressing
that the parcels of land, as well as the improvements made thereon, were contributed
by the parties to the joint venture under the JVA, hence, formed part of the assets of
the joint venture.53 The trial court declared that respondents were entitled to the
possession not only of the parcels of land but also of the improvements thereon as a
consequence of its finding that petitioners breached their agreement and defrauded
respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under the
Court’s ruling in Aurbach, is a form of partnership, and as such is to be governed by
the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence
on record that petitioners willfully and persistently committed a breach of the JVA, the
court thereby dissolved/cancelled the partnership.54 With the rescission of the JVA on
account of petitioners’ fraudulent acts, all authority of any partner to act for the
partnership is terminated except so far as may be necessary to wind up the partnership
affairs or to complete transactions begun but not yet finished.55 On dissolution, the
partnership is not terminated but continues until the winding up of partnership affairs is
completed.56 Winding up means the administration of the assets of the partnership for
the purpose of terminating the business and discharging the obligations of the
partnership.
The transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs, and
the partition and distribution of the net partnership assets as provided by law.57 After
all, Article 1836 of the New Civil Code provides that unless otherwise agreed by the
parties in their JVA, respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved
the partnership or the legal representative of the last surviving partner, not insolvent,
has the right to wind up the partnership affairs, provided, however, that any partner, his
legal representative or his assignee, upon cause shown, may obtain winding up by the
court.
It must be stressed, too, that although respondents acquired possession of the lands
and the improvements thereon, the said lands and improvements remained partnership
property, subject to the rights and obligations of the parties, inter se, of the creditors
and of third parties under Articles 1837 and 1838 of the New Civil Code, and subject to
the outcome of the settlement of the accounts between the parties as provided in
Article 1839 of the New Civil Code, absent any agreement of the parties in their JVA to
the contrary.58 Until the partnership accounts are determined, it cannot be ascertained
how much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for
the value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when
dissolution is caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others,
may do so, during the agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the payment by bond approved
by the court, or pay to any partner who has caused the dissolution wrongfully, the
value of his interest in the partnership at the dissolution, less any damages recoverable
under the second paragraph, No. 1(b) of this article, and in like manner indemnify him
against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No.
2, all the rights of a partner under the first paragraph, subject to liability for damages in
the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the
right as against his co-partners and all claiming through them in respect of their
interests in the partnership, to have the value of his interest in the partnership, less any
damage caused to his co-partners by the dissolution, ascertained and paid to him in
cash, or the payment secured by a bond approved by the court, and to be released
from all existing liabilities of the partnership; but in ascertaining the value of the
partner’s interest the value of the good-will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him
for the purchase of an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the
creditors of the partnership for any payments made by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in
Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following
rules shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities
specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to
the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to
satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall
have the right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the
contributions specified in No. 4, to the extent of the amount which he has paid in
excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions
specified in No. 4.
(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights of
lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against
his separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED
insofar as they conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.

G.R. No. 144214 July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE,

petitioners,
vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter's
dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1
and the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026.
The assailed Decision disposed as follows:

"WHEREFORE, foregoing premises considered, the Decision dated July 21,

1992 rendered by the Regional Trial Court, Branch 148, Makati City is hereby
SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered
ordering the [petitioners] jointly and severally to pay and reimburse to
[respondents] the amount of P253,114.00. No pronouncement as to costs."4

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering
business under the name "Aquarius Food House and Catering Services."5 Villareal was
appointed general manager and Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September

5, 1984. His capital contribution of P250,000 was paid by his parents, Respondents
Cesar and Carmelita Ramirez.6

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution
of P250,000 was refunded to him in cash by agreement of the partners.7
In the same month, without prior knowledge of respondents, petitioners closed down the
restaurant, allegedly because of increased rental. The restaurant furniture and
equipment were deposited in the respondents' house for storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no
longer interested in continuing their partnership or in reopening the restaurant, and that
they were accepting the latter's offer to return their capital contribution. 9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the
deterioration of the restaurant furniture and equipment stored in their house. She also
reiterated the request for the return of their one-third share in the equity of the
partnership. The repeated oral and written requests were, however, left unheeded.10

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently
filed a Complaint11 dated November 10, 1987, for the collection of a sum of money from
petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to

withdraw from the partnership and had called for its dissolution under Articles 1830 and
1831 of the Civil Code; that respondents had been paid, upon the turnover to them of
furniture and equipment worth over P400,000; and that the latter had no right to demand
a return of their equity because their share, together with the rest of the capital of the
partnership, had been spent as a result of irreversible business losses.12

In their Reply, respondents alleged that they did not know of any loan encumbrance on
the restaurant. According to them, if such allegation were true, then the loans incurred
by petitioners should be regarded as purely personal and, as such, not chargeable to
the partnership. The former further averred that they had not received any regular report
or accounting from the latter, who had solely managed the business. Respondents also
alleged that they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the restaurant.13

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of

Restaurant Furniture and Equipment14 on July 8, 1988. The furniture and the equipment
stored in their house were inventoried and appraised at P29,000.15 The display freezer
was sold for P5,000 and the proceeds were paid to them.16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership,
which could be dissolved at any time. Petitioners clearly intended to dissolve it when
they stopped operating the restaurant. Hence, the trial court, in its July 21, 1992
Decision, held there liable as follows:18
 "WHEREFORE, judgment is hereby rendered in favor of [respondents] and
against the [petitioners] ordering the [petitioners] to pay jointly and severally the
following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when petitioners lost interest in
continuing the restaurant business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and because no
sufficient evidence was presented to show financial losses, the CA. computed their
liability as follows:

"Consequently, since what has been proven is only the outstanding obligation of
the partnership in the amount of P240,658.00, although contracted by the
partnership before [respondents'] have joined the partnership but in accordance
with Article 1826 of the New Civil Code, they are liable which must have to be
deducted from the remaining capitalization of the said partnership which is in the
amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order to
get the share of [respondents], this amount of P759,342.00 must be divided into
three (3) shares or in the amount of P253,114.00 for each share and which is the
only amount which [petitioner] will return to [respondents'] representing the
contribution to the partnership minus the outstanding debt thereof."19

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution
of the capital contribution, instead of the net capital after the dissolution and
liquidation of a partnership, thereby treating the capital contribution like a loan, is
in accordance with law and jurisprudence;
 "9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners
to jointly and severally pay and reimburse the amount of [P]253,114.00 is
supported by the evidence on record; and

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs."22

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to
respondents for the latter's share in the partnership; (2) whether the CA's computation
of P253,114 as respondents' share is correct; and (3) whether the CA was likewise
correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:
Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and
that it was dissolved on March 1, 1987. They found that the dissolution took place when
respondents informed petitioners of the intention to discontinue it because of the former's
dissatisfaction with, and loss of trust in, the latter's management of the partnership
affairs. These findings were amply supported by the evidence on record. Respondents
consequently demanded from petitioners the return of their one-third equity in the
partnership.

We hold that respondents have no right to demand from petitioners the return of their
equity share. Except as managers of the partnership, petitioners did not personally hold
its equity or assets. "The partnership has a juridical personality separate and distinct
from that of each of the partners."23 Since the capital was contributed to the partnership,
not to petitioners, it is the partnership that must refund the equity of the retiring partners.24

Second Issue:
What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares
of the partners, the amount to be refunded is necessarily limited to its total resources. In
other words, it can only pay out what it has in its coffers, which consists of all its assets.
However, before the partners can be paid their shares, the creditors of the partnership
must first be compensated.25 After all the creditors have been paid, whatever is left of
the partnership assets becomes available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents'
one-third share in the partnership cannot be determined until all the partnership assets
will have been liquidated — in other words, sold and converted to cash — and all
partnership creditors, if any, paid. The CA's computation of the amount to be refunded
to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total
capital contribution was equivalent to the gross assets to be distributed to the partners
at the time of the dissolution of the partnership. We cannot sustain the underlying idea
that the capital contribution at the beginning of the partnership remains intact,
unimpaired and available for distribution or return to the partners. Such idea is
speculative, conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits
earned or decreased by losses sustained. It does not remain static and unaffected by
the changing fortunes of the business. In the present case, the financial statements
presented before the trial court showed that the business had made meager profits.26
However, notable therefrom is the omission of any provision for the depreciation27 of the
furniture and the equipment. The amortization of the goodwill28 (initially valued at
P500,000) is not reflected either. Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses, which consequently
decreased the capital of the partnership. Both the trial and the appellate courts in fact
recognized the decrease of the partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the capital.

Second, the CA's finding that the partnership had an outstanding obligation in the
amount of P240,658 was not supported by evidence. We sustain the contrary finding of
the RTC, which had rejected the contention that the obligation belonged to the
partnership for the following reason:

"x x x [E]vidence on record failed to show the exact loan owed by the partnership
to its creditors. The balance sheet (Exh. '4') does not reveal the total loan. The
Agreement (Exh. 'A') par. 6 shows an outstanding obligation of P240,055.00
which the partnership owes to different creditors, while the Certification issued by
Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party defendant in the
instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the
original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid
by the partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually
reduced. When petitioners and respondents ventured into business together, they
should have prepared for the fact that their investment would either grow or shrink. In
the present case, the investment of respondents substantially dwindled. The original
amount of P250,000 which they had invested could no longer be returned to them,
because one third of the partnership properties at the time of dissolution did not amount
to that much.

It is a long established doctrine that the law does not relieve parties from the effects of
unwise, foolish or disastrous contracts they have entered into with all the required
formalities and with full awareness of what they were doing. Courts have no power to
relieve them from obligations they have voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments.29

Petitioners further argue that respondents acted negligently by permitting the partnership
assets in their custody to deteriorate to the point of being almost worthless. Supposedly,
the latter should have liquidated these sole tangible assets of the partnership and
considered the proceeds as payment of their net capital. Hence, petitioners argue that
the turnover of the remaining partnership assets to respondents was precisely the
manner of liquidating the partnership and fully settling the latter's share in the
partnership.

We disagree. The delivery of the store furniture and equipment to private respondents
was for the purpose of storage. They were unaware that the restaurant would no longer
be reopened by petitioners. Hence, the former cannot be faulted for not disposing of the
stored items to recover their capital investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise provided

in these rules, costs shall be allowed to the prevailing party as a matter of
course, but the court shall have power, for special reasons, to adjudge that either
party shall pay the costs of an action, or that the same be divided, as may be
equitable. No costs shall be allowed against the Republic of the Philippines
unless otherwise provided by law."

Although, as a rule, costs are adjudged against the losing party, courts have discretion,
"for special reasons," to decree otherwise. When a lower court is reversed, the higher
court normally does not award costs, because the losing party relied on the lower court's
judgment which is presumed to have been issued in good faith, even if found later on to
be erroneous. Unless shown to be patently capricious, the award shall not be disturbed
by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution
SET ASIDE. This disposition is without prejudice to proper proceedings for the
accounting, the liquidation and the distribution of the remaining partnership assets, if
any. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-5837 May 31, 1954

CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants,

vs.
JAIME HERNANDEZ, defendant-appellee.

REYES, J.:

This is an action for the recovery of the sum of P115,312.50, with interests, as plaintiffs'
alleged share in the profits of a partnership.

It appears that prior to January, 1947, plaintiffs with other associates formed a syndicate
or secret partnership for the purpose of acquiring the plants, franchises and other
properties of the Manila Electric Co. — hereinafter called the Meralco — in the provinces
of Camarines Sur, Albay, and Sorsogon, with the idea of continuing that company's
business in that region. No formal articles were drawn for it was the purpose of the
members to incorporate once the deal had been consummated. But in the meantime
they elected Pedro Serranzana and David Serrano general manager and secretary-
treasurer, respectively, of the partnership.

Negotiation for the purchase was commenced, but as it made no headway, defendant
was taken in as a member of the partnership so that he could push the deal through,
and to that end he was given the necessary power of attorney. Using partnership funds,
defendant was able to buy the Meralco properties for P122,000, paying P40,000 upon
the signing of the deed of sale and agreeing to pay the balance in two equal installments,
that is, P41,000 on or before July 31, 1947, and another P41,000 on or before January
31, 1948, with interest at 6 per cent per annum and with a penalty clause which reads:

(6) That in case the VENDEE fails to make the payment or payments of the
balance due or any part thereof as herein provided, this contract shall, at the
option of the VENDOR, be annuled and, in such an event, all payments made by
the VENDEE to the VENDOR by virtue of this contract shall be forfeited and
 retained by the VENDOR in full satisfaction as the liquidated damages sustained
by said VENDOR; and the said VENDOR shall have the right to forthwith reenter
and take possession of the premises, properties and rights which are the subject-
matter of this contract.

Although defendant was the one named vendee in the deed of sale, there is no question
that the transaction was in penalty made for the partnership so that the latter assumed
control of the business the day following the sale.

About the latter half of the following month the members of the partnership proceeded
with the formation of the proposed corporation, apportioning among themselves its
shares of stock in proportion to their respective contributions to the capital of the
partnership and their individual efforts in bringing about the acquisition of the Meralco
properties. But before the incorporation papers could be perfected, several partners, not
satisfied with the way matters were being run and fearful that the venture might prove a
failure because the business was not going well and there was a possibility of their being
assessed more than their original investments when the time came to meet the two
installments of the unpaid purchase price due the Meralco, expressed their desire to
withdraw from the partnership and get back the money they had invested therein. In
accordance with this wish, one of them, Judge Jaime Reyes, in a meeting held on April
10, 1947, to consider various matters connected with the business, presented a
resolution to the effect that those partners who did not want to remain in the association
should be allowed to withdraw and get back their contributions. The resolution was
approved, with the herein plaintiffs voting affirmatively, and on that same day plaintiffs
and Judge Reyes withdrew from the partnership, and, as admitted by both parties, the
partnership was then dissolved. In accordance with the terms of the resolution, the
withdrawing partners were, on the following day, reimbursed their respective
contributions to the partnership fund.

Following the dissolution of the partnership, the members who preferred to remain in the
business went ahead with the formation of the corporation, taking in new associates as
stockholders. And defendant, on his part, in fulfillment of his trust, made a formal
assignment of the Meralco properties to the treasurer of the corporation, giving them a
book value of P365,000, in return for which the corporation issued, to the various
subscribers to its capital stock, shares of stock of the total face value of P225,000 and
assumed the obligation of paying what was still due the Meralco on the purchase price.
The new corporation was named "Bicol Electric Company."

Though business was losing during the first year, that is, in 1947, the corporation, thanks
to a loan obtained from the RFC later prospered and made money. Then trouble began
for one of its big stockholders, the defendant herein.
Two years from their withdrawal from the partnership, when the corporate business was
already in a prosperous condition, plaintiffs brought the present suit against Jaime
Hernandez, claiming a share in the profit the latter is supposed to have made from the
assignment of the Meralco properties to the corporation, estimated by plaintiffs to be
P225,000 and their share of it to be P115,312.50.

Defendant's answer denies that he has made any profit out of the assignment in question
and alleges that in any event plaintiffs, after their withdrawal from the partnership, ceased
to have any further interest in the subsequent transactions of the remaining members.

After trial the lower court found that the partnership had not realized any profit out of the
assignment of the Meralco properties to the corporation and that, even supposing that
profit had really been made, defendant would not be the one to answer to plaintiffs for
their share thereof, because he did not receive the consideration for the assignment,
which according to the court, consisted of the subscriptions of various persons to the
capital stock of the corporation. The court therefore dismissed the complaint with costs
against the plaintiffs. From this decision plaintiffs appealed. The case comes within our
jurisdiction because of the amount involved.

We find no merit in the appeal.

In the first place, the profit alleged to have been realized from the assignment of the
Meralco properties to the new corporation, the Bicol Electric Company, is more apparent
than real. It is true that the value set for those properties in the deed of assignment was
P365,000 when the acquisition price was only P122,000. But one should not jump to the
conclusion that a profit, consisting of the difference between the two sums was really
made out of the transaction, for the assignment was not made for cash but in payment
for subscriptions to shares of stock in the assignee, and while those shares had a total
face value of P225,000, this is not necessarily their real worth. Needless to say, the real
value of the shares of stock of a corporation depends upon the value of its assets over
and above its liabilities. It does not appear that the Bicol Electric Company had any
assets other than those acquired from the Meralco, and according to the evidence the
company, aside from owing the Meralco, P82,000 was, in the language of the court
below, actually "in the red."

In the second place, assuming that the assignment actually brought profit to the
partnership, it is hard to see how defendant could be made to answer for plaintiffs'
alleged share thereof. As stated in the decision below, defendant did not receive the
consideration for the assignment for, as already stated, the assignment was made in
payment for subscriptions of various persons to the capital stock of the new corporation.
Plaintiffs, in order to give color of legality to their claim against defendant, maintain that
the latter should be held liable for damages caused to them, consisting of the loss of
their share of the profits, due to defendant's failure properly to perform his duty as a
liquidator of the dissolved partnership, this on the theory that as managing partner of the
partnership, it was defendant's duty to liquidate its affairs upon its dissolutions. But it
does not appear that plaintiffs have ever asked for a liquidation, and as will presently be
explained no liquidation was called for because when plaintiffs withdrew from the
partnership the understanding was that after they had been reimbursed their investment,
they were no longer to have any further interest in the partnership or its assets and
liabilities. Moreover, the stipulation of facts made at the hearing does not bear out the
claim that defendant was the managing partner of the partnership, for if there appears
that the partnership had its general manager in the person of Pedro Serranzana, who
upon the formation of the new corporation also became its vice-president and general
manager.

As a general rule, when a partner retires from the firm, he is entitled to the payment of
what may be due him after a liquidation. But certainly no liquidation is necessary where
there is already a settlement or an agreement as to what the retiring partner shall receive.
In the instant case, it appears that a settlement was agreed upon on the very day the
partnership was dissolved. For when plaintiffs and Judge Jaime Reyes withdrew from
the partnership on that day they did so as agreed to by all the partners, subject to the
only condition that they were to be repaid their contributions or investments within three
days from said date. And this condition was fulfilled when on the following day they were
reimbursed the respective amounts due them pursuant to the agreement.

There is evidence that the partnership was at that time operating its business at a loss
and that the partnership did not have necessary funds to meet its obligation to Meralco
for the balance of the purchase price. And in that connection it should be recalled that
nonpayment of that obligation would result in the partnership losing its entire investment
because of the penalty clause in the deed of sale. Because of these circumstances there
is every reason to believe that plaintiffs together with Judge Jaime Reyes, withdrew from
the partnership for fear that they might lose their entire investment should they choose
to remain in the partnership which then faced the danger of losing its entire assets. As
testified to by Judge Reyes, one of the withdrawing partners, it was clearly understood
that upon their withdrawal and return to them of their investment they would have nothing
more to do with the association. It must, therefore, have been the intention or
understanding of the parties that the withdrawing partners were relinquishing all their
rights and interest in the partnership upon the return to them of their investment. That
Judge Reyes did not join the plaintiffs in this action is a clear indication that such was
really the understanding. Judge Reyes has testified that when he was invited to join in
the present claim he refused because he did not want to be a "sin verguenza." And,
indeed, if the agreement was that the withdrawing partners were still to have participation
in the subsequent transactions of the partnership so that they would have a share not
only in the profits but also in the losses, it is not likely that their investment would have
been returned to them.
It is, therefore, our conclusion that the acceptance by the withdrawing partners, including
the plaintiffs, of their investment in the instant case was understood and intended by all
the parties as a final settlement of whatever rights or claim the withdrawing partners
might have in the dissolved partnership. Such being the case they are now precluded
from claiming any share in the alleged profits, should there be any, at the time of the
dissolution.

In view of the foregoing, we find plaintiffs' claim against defendant to be without legal
basis so that the judgment of dismissal rendered by the court below should be, as it is
hereby, affirmed, with costs against the appellants.

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES

CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,
respondents.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R.

LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.

G.R. Nos. 75975-76 December 15, 1989

LUCIANO E. SALAZAR, petitioner,

vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT
OF APPEALS, respondents.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of
Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6)
candidates and in the event they cannot agree on the six (6) nominees, they shall vote
only among themselves to determine who the six (6) nominees will be, with cumulative
voting to be allowed but without interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose
of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin
Young went abroad to look for foreign partners, European or American who could help
in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in
Delaware, United States entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to participate in the ownership
of an enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares. The parties
agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in

the form annexed hereto as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of

Directors, which shall consist of nine individuals. As long as American-
Standard shall own at least 30% of the outstanding stock of the
 Corporation, three of the nine directors shall be designated by American-
Standard, and the other six shall be designated by the other stockholders
of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as a

minority group, including the grant of veto powers over a number of corporate acts and
the right to designate certain officers, such as a member of the Executive Committee
whose vote was required for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition
that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.

The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According to
the Filipino group, a basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting was held. The
meeting was presided by Baldwin Young. The minutes were taken by the Secretary,
Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders
then proceeded to the election of the members of the board of directors. The ASI group
nominated three persons namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr.,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr.
Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr.
Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of
order on the basis of section 5 (a) of the Agreement, the consistent practice of the
parties during the past annual stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of Saniwares'
legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to the
body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of order
and no vote on the ruling was taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present and represented by proxy
equally for the 6 nominees of the Philippine Investors and the 3 nominees
of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative,
 Mr. Jaqua protested the decision of the Chairman and announced that all
votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R.
SP No. 05617) were being cumulatively voted for the three ASI nominees
and Charles Chamsay, and instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that all the votes owned by
and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No.
05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all
votes equally in favor of the three ASI nominees, namely, Wolfgang
Aurbach, John Griffin and David Whittingham and the six originally
nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul
Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the following
Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo,
Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
Boncan, Baldwin Young. The representative of ASI then moved to recess
the meeting which was duly seconded. There was also a motion to adjourn
(p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted
by the Chairman, Baldwin Young, who announced that the motion was
carried and declared the meeting adjourned. Protests against the
adjournment were registered and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The
Chairman then threatened to have the stockholders who did not agree to
the decision of the Chairman on the casting of votes bodily thrown out. The
ASI Group, Luciano E. Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares, decided to continue the
meeting at the elevator lobby of the American Standard Building. The
continued meeting was presided by Luciano E. Salazar, while Andres
Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees;
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay.
Luciano E. Salazar voted for himself, thus the said five directors were
certified as elected directors by the Acting Secretary, Andres Gatmaitan,
with the explanation that there was a tie among the other six (6) nominees
for the four (4) remaining positions of directors and that the body decided
not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean
Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417.
The second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay
against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties
except for Avelino Cruz claimed to be the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who rendered
a decision upholding the election of the Lagdameo Group and dismissing the quo
warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED

ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE
BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS
NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM

EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS

PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE
NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-
75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
 11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding
contractual agreements entered into by stockholders and the replacement
of the conditions of such agreements with terms never contemplated by the
stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the
property rights of stockholders without due process of law in order that a
favored group of stockholders may be illegally benefitted and guaranteed a
continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-
75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE

RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE
DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT

PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation
and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC
MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a corporation
and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the

parties hereto partners or joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)

They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7, Rule
130 of the Revised Rules of Court. According to them, the Lagdameo and Young
Group never pleaded in their pleading that the "Agreement" failed to express the true
intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have

been reduced to writing, it is to be considered as containing all such terms,
and therefore, there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other than the contents
of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express

the true intent and agreement of the parties or the validity of the agreement
is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply
and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to
express the true intent of the parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with, and does not preclude,
 the existence of two distinct groups of stockholders in Saniwares one of
which (the Philippine Investors) shall constitute the majority, and the other
ASI shall constitute the minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in entering into the Agreement
is to enter into ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted together attributing to the
doubtful ones that sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil Code). (Part I, Original
Records, SEC Case No. 2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the

parties joined their efforts in furtherance of an enterprise for their joint profit,
the question whether they intended by their agreement to create a joint
adventure, or to assume some other relation is a question of fact for the
jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200
P 96 33 C.J. p. 871)

In the instant cases, our examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and Young Group shows that
the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he negotiated

the Agreement with ASI in behalf of the Philippine nationals. He testified
that ASI agreed to accept the role of minority vis-a-vis the Philippine
National group of investors, on the condition that the Agreement should
contain provisions to protect ASI as the minority.

An examination of the Agreement shows that certain provisions were

included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate acts
[Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3 (b) (i)].
 The Agreement also requires a 75% super-majority vote for the
amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b)
(iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales policy
of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)]
and that Saniwares should not export "Standard" products otherwise than
through ASI's Export Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and know-how to Saniwares
and the latter paid royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out

of 9 votes of the board of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement) an effective veto
power. Furthermore, the grant to ASI of the right to designate certain
officers of the corporation; the super-majority voting requirements for
amendments of the articles and by-laws; and most significantly to the
issues of tms case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI, which
owns 40% of the capital stock and the Philippine National stockholders who
own the balance of 60%, and that 2) ASI is given certain protections as the
minority stockholder.

Premises considered, we believe that under the Agreement there are two
groups of stockholders who established a corporation with provisions for a
special contractual relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture.

Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein
contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder" was merely to obviate the possibility
of the enterprise being treated as partnership for tax purposes and liabilities to third
parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the Philippine
firm enlarges its operations and becomes profitable, the foreign group undermines the
local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to
say the least. To the extent that such subversive actions can be lawfully prevented, the
courts should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal

In fact, the Philippine Corporation Code itself recognizes the right of

stockholders to enter into agreements regarding the exercise of their voting
rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed

by the parties thereto, may provide that in exercising any voting rights, the
shares held by them shall be voted as therein provided, or as they may
agree, or as determined in accordance with a procedure agreed upon by
them.

Appellants contend that the above provision is included in the Corporation

Code's chapter on close corporations and Saniwares cannot be a close
corporation because it has 95 stockholders. Firstly, although Saniwares
had 95 stockholders at the time of the disputed stockholders meeting,
these 95 stockholders are not separate from each other but are divisible
into groups representing a single Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family
for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7
stockholders, etc. If the members of one family and/or business or interest
group are considered as one (which, it is respectfully submitted, they
should be for purposes of determining how closely held Saniwares is there
were as of 8 March 1983, practically only 17 stockholders of Saniwares.
(Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close

corporation because it has more than 20 stockholders, the undeniable fact
is that it is a close-held corporation. Surely, appellants cannot honestly
claim that Saniwares is a public issue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint
venture corporations and have not rigidly applied principles of corporation
law designed primarily for public issue corporations. These courts have
indicated that express arrangements between corporate joint ventures
should be construed with less emphasis on the ordinary rules of law usually
applied to corporate entities and with more consideration given to the
nature of the agreement between the joint venturers (Please see Wabash
Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P.
Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry
v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris,
207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296
Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The
Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p.
680,1958). These American cases dealt with legal questions as to the
extent to which the requirements arising from the corporate form of joint
venture corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture agreement
rather than the litigants who relied on the orthodox principles of corporation
law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint venture

deviate from the traditional pattern of corporation management. A noted
authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do
one or more of the following: (1) require greater than majority vote for
shareholder and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3) give to the
shareholders control over the selection and retention of employees; and (4)
set up a procedure for the settlement of disputes by arbitration (See I O'
Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
 Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not
necessarily imply that agreements regarding the exercise of voting rights
are allowed only in close corporations. As Campos and Lopez-Campos
explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does

this provision necessarily imply that these agreements can be valid only in
close corporations as defined by the Code? Suppose that a corporation has
twenty five stockholders, and therefore cannot qualify as a close
corporation under section 96, can some of them enter into an agreement to
vote as a unit in the election of directors? It is submitted that there is no
reason for denying stockholders of corporations other than close ones the
right to enter into not voting or pooling agreements to protect their interests,
as long as they do not intend to commit any wrong, or fraud on the other
stockholders not parties to the agreement. Of course, voting or pooling
agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close
corporations to those which comply with the requisites laid down by section
96, it is entirely possible that a corporation which is in fact a close
corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like
voting agreements if these are otherwise valid. (Campos & Lopez-Campos,
op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the Agreement's
signatories to vote for directors, such contractual provision, as correctly
held by the SEC, is valid and binding upon the signatories thereto, which
include appellants. (Rollo No. 75951, pp. 90-94)

In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals correctly
stated:

As in other joint venture companies, the extent of ASI's participation in the

management of the corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall be designated by ASI
and the remaining six by the other stockholders, i.e., the Filipino
stockholders. This allocation of board seats is obviously in consonance with
the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative
that the parties should honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend that any allocation of
board seats, even in joint venture corporations, are null and void to the
extent that such may interfere with the stockholder's rights to cumulative
voting as provided in Section 24 of the Corporation Code. This Court
should not be prepared to hold that any agreement which curtails in any
way cumulative voting should be struck down, even if such agreement has
been freely entered into by experienced businessmen and do not prejudice
those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in
the decision appealed from, that cumulative voting rights may be voluntarily
waived by stockholders who enter into special relationships with each other
to pursue and implement specific purposes, as in joint venture relationships
between foreign and local stockholders, so long as such agreements do not
adversely affect third parties.

In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give life
and effect to the particular contractual rights and obligations which the
parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats Cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative voting should also be
protected.

In our decision sought to be reconsidered, we opted to uphold the second

over the first. Upon further reflection, we feel that the proper and just
solution to give due consideration to both factors suggests itself quite
clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting in the process of
determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the
Filipino stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only. During this
voting, each Filipino stockholder can cumulate his votes. ASI, however,
should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it
is allowed to designate under the Agreement, and may even be able to get
 a majority of the board seats, a result which is clearly contrary to the
contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (Rollo-75875,
pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the Corporation
Code which gives the stockholders of a corporation the right to cumulate their votes in
electing directors. Petitioner Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act
108, as amended). He cites section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in
partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities. (amendments
introduced by Presidential Decree 715, section 1, promulgated May 28,
1975)

The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:

The legal concept of ajoint venture is of common law origin. It has no

precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership,
since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. Blackner v. Mc
Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tufts
v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395
111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
 This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint venture is
a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil.
906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected
Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties
as regards the allocation of director seats under Section 5 (a) of the "Agreement," and
the right of each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3 (a) (1) of the
"Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.

This is the proper interpretation of the Agreement of the parties as regards the election
of members of the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the
Filipino group. Otherwise, ASI would be able to designate more than the
three directors it is allowed to designate under the Agreement, and may
even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
 give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is
that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the same law also
limits the election of aliens as members of the board of directors in proportion to their
allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3
board seats in the 9-man board of directors there are provisions already agreed upon
and embodied in the parties' Agreement to protect the interests arising from the
minority status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors allotted
the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of
the Agreement which uses the word "designate" meaning "nominate, delegate or
appoint."

They also stress the possibility that the ASI Group might take control of the enterprise
if the Filipino stockholders are allowed to select their nominees separately and not as a
common slot determined by the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of directors.
The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now
impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being genuine
members of the Filipino group, not voters whose interest is to increase the ASI share in
the management of Saniwares. The joint venture character of the enterprise must
always be taken into account, so long as the company exists under its original
agreement. Cumulative voting may not be used as a device to enable ASI to achieve
stealthily or indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority status of the
Filipino investors as well as to maintain the minority status of the foreign investors
group as earlier discussed. They should be maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John
Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan,
Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the
duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
In all other respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

SO ORDERED.

G.R. No. L-11840 July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
REYES, J. B. L., J.:
Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear
that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a general
commercial partnership under the partnership name "Tan Sin An and Antonio C.
Goquiolay", for the purpose in dealing in real state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by
Tan Sin An. The agreement lodge upon Tan Sin An the sole management of the
partnership affairs, stipulating that —
III. The co-partnership shall be composed of said Tan Sin An as sole managing and
partner (sic), and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and
partner (sic) or by his authorized agent, and it is expressly stipulated that the managing
and partner (sic) may delegate the entire management of the affairs of the co-
partnership by irrevocable power of attorney to any person, firm or corporation he may
select upon such terms as regards compensation as he may deem proper, and vest in
such persons, firm or corporation full power and authority, as the agent of the co-
partnership and in his name, place and stead to do anything for it or on his behalf
which he as such managing and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the affairs
of the co-partnership; but he may examine its accounts once every six (6) months at
any time during ordinary business hours, and in accordance with the provisions of the
Code of Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that —
In the event of the death of any of the partners at any time before the expiration of said
term, the co-partnership shall not be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs or assigns in said co-partnership
(Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time upon
mutual agreement in writing of the partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this
effect:
That besides the powers and duties granted the said Tan Sin An by the articles of co-
partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan
Sin An should act as the Manager for said co-partnership for the full period of the term
for which said co-partnership was organized or until the whole period that the said
capital of P30,000.00 of the co-partnership should last, to carry on to the best
advantage and interest of the said co-partnership, to make and execute, sign, seal and
deliver for the co-partnership, and in its name, all bills, bonds, notes, specialties, and
trust receipts or other instruments or documents in writing whatsoever kind or nature
which shall be necessary to the proper conduction of the said businesses, including the
power to mortgage and pledge real and personal properties, to secure the obligation of
the co-partnership, to buy real or personal properties for cash or upon such terms as
he may deem advisable, to sell personal or real properties, such as lands and buildings
of the co-partnership in any manner he may deem advisable for the best interest of
said co-partnership, to borrow money on behalf of the co-partnership and to issue
promissory notes for the repayment thereof, to deposit the funds of the co-partnership
in any local bank or elsewhere and to draw checks against funds so deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the
three (3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral
Survey of Davao, subject-matter of the instant litigation, assuming the payment of a
mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de
Construccion y Prestamos" for a period of ten (10) years, with 10% interest per annum.
Another 46 parcels were purchased by Tan Sin An in his individual capacity, and he
assumed payment of a mortgage debt thereon for P35,000.00 with interest. The
downpayment and the amortization were advanced by Yutivo and Co., for the account
of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an
instrument executed by the partnership and Tan Sin An, whereby the entire 49 lots
were mortgaged in favor of the "Banco Hipotecario de Filipinas" (as successor to "La
Urbana") and the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8
years, with 8% annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai
Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan
K. Chuan. Defendant Kong Chai Pin was appointed administratrix of the intestate
estate of her deceased husband.
In the meantime, repeated demands for payment were made by the Banco Hipotecario
on the partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and
Cuan, Co., Inc., upon request of defendant Yutivo Sans Hardware Co., paid the
remaining balance of the mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their
claims in the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13,
respectively, as alleged obligations of the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming
knowledge of said claims at first, Kong Chai Pin later admitted the claims in her
amended answer and they were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to
sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose
preliminary of settling the aforesaid debts of Tan Sin An and the partnership. Pursuant
to a court order of April 2, 1949, the administratrix executed on April 4, 1949, a deed of
sale1 of the 49 parcels of land to the defendants Washington Sycip and Betty Lee in
consideration of P37,000.00 and of vendees' assuming payments of the claims filed by
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc.
a deed of transfer covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay
filed, on or about July 25, 1949, a petition in the intestate proceedings seeking to set
aside the order of the probate court approving the sale in so far as his interest over the
parcels of land sold was concerned. In its order of December 29, 1949, the probate
court annulled the sale executed by the administratrix with respect to the 60% interest
of Antonio Goquiolay over the properties sold. Kong Chai Pin appealed to the Court of
Appeals, which court later certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307).
On June 30, 1953, we rendered decision setting aside the orders of the probate court
complained of and remanding the case for new trial, due to the non-inclusion of
indispensable parties. Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for the
annulment of the sale in favor of Washington Sycip and Betty Lee, and their
subsequent conveyance in favor of Insular Development Co., Inc., in so far as the
three (3) lots owned by the plaintiff partnership are concerned. The answer averred the
validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin
An. After hearing, the complaint was dismissed by the lower court in its decision dated
October 30, 1956; hence, this appeal taken directly to us by the plaintiffs, as the
amount involved is more than P200,000.00. Plaintiffs-appellants assign as errors that
—
I — The lower court erred in holding that Kong Chai Pin became the managing partner
of the partnership upon the death of her husband, Tan Sin An, by virtue of the articles
of Partnership executed between Tan Sin An and Antonio Goquiolay, and the general
power of attorney granted by Antonio Goquiolay.
II — The lower court erred in holding that Kong Chai Pin could act alone as sole
managing partner in view of the minority of the other heirs.
III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to
act as managing partner.
IV — The lower court erred in holding that Kong Chai Pin had authority to sell the
partnership properties by virtue of the articles of partnership and the general power of
attorney granted to Tan Sin An in order to pay the partnership indebtedness.
V — The lower court erred in finding that the partnership did not pay its obligation to
the Banco Hipotecario.
VI — The lower court erred in holding that the consent of Antonio Goquiolay was not
necessary to consummate the sale of the partnership properties.
VII — The lower court erred in finding that Kong Chai Pin managed the business of the
partnership after the death of her husband, and that Antonio Goquiolay knew it.
VIII — The lower court erred in holding that the failure of Antonio Goquiolay to oppose
the management of the partnership by Kong Chai Pin estops him now from attacking
the validity of the sale of the partnership properties.
IX — The lower court erred in holding that the buyers of the partnership properties
acted in good faith.
X — The lower court erred in holding that the sale was not fraudulent against the
partnership and Antonio Goquiolay.
XI — The lower court erred in holding that the sale was not only necessary but
beneficial to the partnership.
XII — The lower court erred in dismissing the complaint and in ordering Antonio
Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that the widow,
Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole management of the
partnership, upon the latter's death. While, as we previously stated in our narration of
facts, the Articles of Co-Partnership and the power of attorney executed by Antonio
Goquiolay, conferred upon Tan Sin An the exclusive management of the business,
such power, premised as it is upon trust and confidence, was a mere personal right
that terminated upon Tan's demise. The provision in the articles stating that "in the
event of death of any one of the partners within the 10-year term of the partnership, the
deceased partner shall be represented by his heirs", could not have referred to the
managerial right given to Tan Sin An; more appropriately, it related to the succession in
the proprietary interest of each partner. The covenant that Antonio Goquiolay shall
have no voice or participation in the management of the partnership, being a limitation
upon his right as a general partner, must be held coextensive only with Tan's right to
manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs of
the deceased, by never repudiating or refusing to be bound under the said provision in
the articles, became individual partners with Antonio Goquiolay upon Tan's demise.
The validity of like clauses in partnership agreements is expressly sanctioned under
Article 222 of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause in the articles of co-
partnership (2 Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire
de Droit Civil, English translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p.
177).
Appellants argue, however, that since the "new" members' liability in the partnership
was limited merely to the value of the share or estate left by the deceased Tan Sin An,
they became no more than limited partners and, as such, were disqualified from the
management of the business under Article 148 of the Code of Commerce. Although
ordinarily, this effect follows from the continuance of the heirs in the partnership,3 it
was not so with respect to the widow Kong Chai Pin, who, by her affirmative actions,
manifested her intent to be bound by the partnership agreement not only as a limited
but as a general partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income therefrom up to and until
the same were sold to Washington Sycip and Betty Lee. In fact, by executing the deed
of sale of the parcels of land in dispute in the name of the partnership, she was acting
no less than as a managing partner. Having thus preferred to act as such, she could be
held liable for the partnership debts and liabilities as a general partner, beyond what
she might have derived only from the estate of her deceased husband. By allowing her
to retain control of the firm's property from 1942 to 1949, plaintiff estopped himself to
deny her legal representation of the partnership, with the power to bind it by the proper
contracts.
The question now arises as to whether or not the consent of the other partners was
necessary to perfect the sale of the partnership properties to Washington Sycip and
Betty Lee. The answer is, we believe, in the negative. Strangers dealing with a
partnership have the right to assume, in the absence of restrictive clauses in the co-
partnership agreement, that every general partner has power to bind the partnership,
specially those partners acting with ostensible authority. And so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of
the two partners, to ascertain whether or not this partner with whom the transaction is
made has the consent of the other partner. The public need not make inquiries as to
the agreements had between the partners. Its knowledge is enough that it is
contracting with the partnership which is represented by one of the managing partners.
"There is a general presumption that each individual partner is an agent for the firm
and that he has authority to bind the firm in carrying on the partnership transactions."
[Mills vs. Riggle, 112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of the members of the firm acting apparently in its
behalf and within the scope of his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed.,
391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the
effect that —
If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the direction
and management of the common business, and the members present shall come to an
agreement for all contracts or obligations which may concern the association.
(Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that does
not necessarily affect the validity of the acts of a partner, while acting within the scope
of the ordinary course of business of the partnership, as regards third persons without
notice. The latter may rightfully assume that the contracting partner was duly
authorized to contract for and in behalf of the firm and that, furthermore, he would not
ordinarily act to the prejudice of his co-partners. The regular course of business
procedure does not require that each time a third person contracts with one of the
managing partners, he should inquire as to the latter's authority to do so, or that he
should first ascertain whether or not the other partners had given their consent thereto.
In fact, Article 130 of the same Code of Commerce provides that even if a new
obligation was contracted against the express will of one of the managing partners, "it
shall not be annulled for such reason, and it shall produce its effects without prejudice
to the responsibility of the member or members who contracted it, for the damages
they may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. — A falta de pactos especiales, la facultad de administrar
corresponde a cada socio personalmente. No hay que esperar ciertamente concordia
con tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del Codigo no
ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el silencio del
contrato, debia quiza el legislador privar de la administracion a uno de los socios en
beneficio del otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad
que no haya elegido Administrador? El remedio seria peor que el mal. Debera, tal vez,
pretender que todos los socios concurran en todo acto de la Sociedad? Pero este
concurso de todos habria reducido a la impotencia la administracion, que es asunto d
todos los dias y de todas horas. Hubieran sido disposiciones menos oportunas que lo
adoptado por el Codigo, el cual se confia al espiritu de reciproca confianza que
deberia animar la colaboracion de los socios, y en la ley inflexible de responsabilidad
que implica comunidad en los intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el
contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
administracion en la totalidad de sus relaciones, salvo su responsabilidad en el caso
de una administracion culpable. Si debiera dar noticia, el beneficio de su simultania
actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a
perder. Se objetara el que de esta forma, el derecho de oposicion de cada uno de los
socios puede quedar frustrado. Pero se puede contestar que este derecho de
oposicion concedido por la ley como un remedio excepcional, debe subordinarse al
derecho de ejercer el oficio de Administrador, que el Codigo concede sin limite: "se
presume que los socios se han concedido reciprocamente la facultad de administrar
uno para otro." Se haria precipitar esta hipotesis en la otra de una administracion
colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el consentimiento, a lo
menos tacito, de todos los socios — lo que el Codigo excluye ........, si se obligase al
socio Administrador a dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II,
147-148) opines:
Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), no es
bastante que los actos y contratos hayan sido ejecutados por un socio o varios en
nombre colectivo, sino que es preciso el concurso de estos dos elementos, uno, que el
socio o socios tengan reconocida la facultad de administrar la Compañia, y otro, que el
acto o contrato haya sido ejecutado en nombre de la Sociedad y usando de su firma
social. Asi se que toda obligacion contraida bajo la razon social, se presume contraida
por la Compañia. Esta presunion es impuesta por motivos de necesidad practica. El
tercero no puede cada vez que trata con la Compañia, inquirir si realmente el negocio
concierne a la Sociedad. La presuncion es juris tantum y no juris et de jure, de modo
que si el gerente suscribe bajo la razon social una obligacion que no interesa a la
Sociedad, este podra rechazar la accion del tercero probando que el acreedor conocia
que la obligacion no tenia ninguna relacion con ella. Si tales actos y contratos no
comportasen la concurrencia de ambos elementos, seria nulos y podria decretarse la
responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la
Compañia, o contabilizados en sus libros, si el acto o contrato ha sido convalidado sin
protesta y se trata de acto o contrato que ha producido beneficio social, tendria plena
validez, aun cuando le faltase algunos o ambos de aquellos requisitos antes
señalados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al
nombramiento o designacion de uno o mas de un socio para administrar la Compañia
(art. 129 del Codigo) todos tienen por un igual el derecho de concurir a la decision y
manejo de los negocios comunes. . . .
Although the partnership under consideration is a commercial partnership and,
therefore, to be governed by the Code of Commerce, the provisions of the old Civil
Code may give us some light on the right of one partner to bind the partnership. States
Art. 1695 thereof:
Should no agreement have been made with respect to the form of management, the
following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of the may do
individually shall bind the partnership; but each one may oppose any act of the others
before it has become legally binding.
The records fail to disclose that appellant Goquiolay made any opposition to the sale of
the partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it
appears that he (Goquiolay) only interposed his objections after the deed of
conveyance was executed and approved by the probate court, and, consequently, his
opposition came too late to be effective.
Appellants assails the correctness of the amounts paid for the account of the
partnership as found by the trial court. This question, however, need not be resolved
here, as in the deed of conveyance executed by Kong Chai Pin, the purchasers
Washington Sycip and Betty Lee assumed, as part consideration of the purchase, the
full claims of the two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware
Co.
Appellants also question the validity of the sale covering the entire firm realty, on the
ground that it, in effect, threw the partnership into dissolution, which requires consent
of all the partners. This view is untenable. That the partnership was left without the real
property it originally had will not work its dissolution, since the firm was not organized
to exploit these precise lots but to engage in buying and selling real estate, and "in
general real estate agency and brokerage business". Incidentally, it is to be noted that
the payment of the solidary obligation of both the partnership and the late Tan Sin An,
leaves open the question of accounting and contribution between the co-debtors, that
should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a
fraudulent device by the appellees, with the connivance of Kong Chai Pin, to ease out
Antonio Goquiolay from the partnership. The "devise", according to the appellants,
started way back sometime in 1945, when one Yu Khe Thai sounded out Antonio
Goquiolay on the possibility of selling his share in the partnership; and upon his refusal
to sell, was followed by the filing of the claims of Yutivo Sons Hardware Co. and Sing
Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin An. As creditors
of Tan Sin An and the plaintiff partnership (whose liability was alleged to be joint and
several), Yutivo Sons Hardware Co., and Sing Yee Cuan Co., Inc. had every right to
file their claims in the intestate proceedings. The denial of the claims at first by Kong
Chai Pin ( for lack of sufficient knowledge) negatives any conspiracy on her part in the
alleged fraudulent scheme, even if she subsequently decided to admit their validity
after studying the claims and finding it best to admit the same. It may not be amiss to
remark that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the properties
were sold was unreasonably low, or in any way unfair, since appellants presented no
evidence of the market value of the lots as of the time of their sale to appellees Sycip
and Lee. The alleged value of P31,056.58 in May of 1955 is no proof of the market
value in 1949, specially because in the interval, the new owners appear to have
converted the land into a subdivision, which they could not do without opening roads
and otherwise improving the property at their own expense. Upon the other hand, Kong
Chai Pin hardly had any choice but to execute the questioned sale, as it appears that
the partnership had neither cash nor other properties with which to pay its obligations.
Anyway, we cannot consider seriously the inferences freely indulged in by the
appellants as allegedly indicating fraud in the questioned transactions, leading to the
conveyance of the lots in dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same,
with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and
Gutierrez David, JJ., concur.
RESOLUTION
December 10, 1963
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for reconsideration of our main
decision, wherein we have upheld the validity of the sale of the lands owned by the
partnership Goquiolay & Tan Sin An, made in 1949 by the widow of the managing
partner, Tan Sin An (executed in her dual capacity of Administratrix of her husband's
estate and as partner, in lieu of the husband), in favor of buyers Washington Sycip and
Betty Lee for the following consideration:
Cash paid
P37,000.00
Debts assumed by purchase:

To Yutivo
62,415.91
To Sing Yee Cuan & Co.
54,310.13
TOTAL
P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our
holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never became
more than a limited partner, incapacitated by law to manage the affairs of the
partnership; that the testimony of her witnesses Young and Lim belies that she took
over administration of the partnership property; and that, in any event, the sale should
be set aside because it was executed with the intent to defraud appellant of his share
in the properties sold.
Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner,
acting in behalf of the firm, to a stranger. There is no question between partners inter
se, and this aspects of the case was expressly reserved in the main decision of 26 July
1960;
(b) That the partnership was expressly organized "to engage in real estate business,
either by buying and selling real estate". The Article of co-partnership, in fact, expressly
provided that:
IV. The object and purpose of the co-partnership are as follows:
1. To engage in real estate business, either by buying and selling real estates; to
subdivide real estates into lots for the purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which was in cash)
but land precisely acquired to be sold, although subject a mortgage in favor of the
original owners, from whom the partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota evidence" that Kong Chai Pin managed and
retained possession of the partnership properties. Suffice it to point out that appellant
Goquiolay himself admitted that —
. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage
the properties (as) she had no other means of income. Then I said, because I wanted
to help Mrs. Kong Chai Pin, she could just do it and besides I am not interested in
agricultural lands. I allowed her to take care of the properties in order to help her and
because I believe in God and I wanted to help her.
Q. — So the answer to my question is you did not take any steps?
A. — I did not.
Q. — And this conversation which you had with Mrs. Yu Eng Lai was few months after
1945?
A. — In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of 30 June 1956,
page 8-9, wherein he sated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of
course they are receiving quite a lot of benefit from that plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly
entitled to greater weight than those of Hernando Young and Rufino Lim, having been
made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the
witness found the properties "abandoned and undeveloped", omits to mention that said
part of the testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs.
Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai Pin) did not
receive any income from the partnership properties, was given in answer to the
question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family
lived on the plantation of the partnership and derived their subsistence from that
plantation. What can you say to that? (Dep. 19 July 1956, p. 8)
And also —
What can you say so to the development of these other properties of the partnership
which you saw during the occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigatto
is about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An.
When I went there with Hernando Young we saw all the abaca destroyed. The place
was occupied by the Japanese Army. They planted camotes and vegetables to feed
the Japanese Army. Of course they never paid any money to Tan Sin An or his family.
(Dep., Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i e., continue to
manage the properties. Witnesses Lim and Young referred to the period of Japanese
occupation; but Goquiolay's authority was, in fact, given to the widow in 1945, after the
occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried
out no acts of management during the Japanese occupation (1942-1944) does not
mean that she did not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he
actually manifested his willingness that the widow should manage the partnership
properties. Whether or not she complied with this authority is a question between her
and the appellant, and is not here involved. But the authority was given, and she did
have it when she made the questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article
1713 of the Civil Code of 1889. What this argument overlooks is that the widow was
not a mere agent, because she had become a partner upon her husband's death, as
expressly provided by the articles of co-partnership. Even more, granting that by
succession to her husband, Tan Sin An, the widow only a became the limited partner,
Goquiolay's authorization to manage the partnership property was proof that he
considered and recognized her has general partner, at least since 1945. The reason is
plain: Under the law (Article 148, last paragraph, Code of Commerce), appellant could
not empower the widow, if she were only a limited partner, to administer the properties
of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the interests
of the co-partnership, not even in the capacity agents of the managing
partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow showed that
she desired to be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say
"necessarily") becomes a limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of the estate inherited so as
not to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become a
collective or general partner, with all the rights and privileges of one, and answering for
the debts of the firm not only with the inheritance bud also with the heir's personal
fortune. This choice pertains exclusively to the heir, and does not require the assent of
the surviving partner.
It must be remembered that the articles of co-partnership here involved expressly
stipulated that:
In that event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued and
the deceased partner shall be represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited
partner; on the contrary they expressly stipulated that in case of death of either partner
"the co-partnership ... will have to be continued" with the heirs or assigns. It certainly
could not be continued if it were to be converted from a general partnership into a
limited partnership, since the difference between the two kinds of associations is
fundamental; and specially because the conversion into a limited association would
leave the heirs of the deceased partner without a share in the management. Hence,
the contractual stipulation does actually contemplate that the heirs would become
general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they
refuse to assume personal and unlimited responsibility for the obligations of the firm.
The heirs, in other words, can not be compelled to become general partners against
their wishes. But because they are not so compellable, it does not legitimately follow
that they may not voluntarily choose to become general partners, waiving the
protective mantle of the general laws of succession. And in the latter event, it is
pointless to discuss the legality of any conversion of a limited partner into a general
one. The heir never was a limited partner, but chose to be, and became, a general
partner right at the start.
It is immaterial that the heirs name was not included in the firm name, since no
conversion of status is involved, and the articles of co-partnership expressly
contemplated the admission of the partner's heirs into the partnership.
It must never be overlooked that this case involves the rights acquired by strangers,
and does not deal with the rights arising between partners Goquiolay and the widow of
Tan Sin An. The issues between the partners inter se were expressly reversed in our
main decision. Now, in determining what kind of partner the widow of partner Tan Sin
An had elected to become, strangers had to be guided by her conduct and actuations
and those of appellant Goquiolay. Knowing that by law a limited partner is barred from
managing the partnership business or property, third parties (like the purchasers) who
found the widow possessing and managing the firm property with the acquiescense (or
at least without apparent opposition) of the surviving partners were perfectly justified in
assuming that she had become a general partner, and, therefore, in negotiating with
her as such a partner, having authority to act for, and in behalf of, the firm. This belief,
be it noted, was shared even by the probate court that approved the sale by the widow
of the real property standing in the partnership name. That belief was fostered by the
very inaction of appellant Goquiolay. Note that for seven long years, from partner Tan
Sin An's death in 1942 to the sale in 1949, there was more than ample time for
Goquiolay to take up the management of these properties, or at least ascertain how its
affairs stood. For seven years Goquiolay could have asserted his alleged rights, and by
suitable notice in the commercial registry could have warned strangers that they must
deal with him alone, as sole general partner. But he did nothing of the sort, because he
was not interested (supra), and he did not even take steps to pay, or settle, the firm
debts that were overdue since before the outbreak of the last war. He did not even take
steps, after Tan Sin An died, to cancel, or modify, the provisions of the partnership
articles that he (Goquiolay) would have no intervention in the management of the
partnership. This laches certainly contributed to confirm the view that the widow of Tan
Sin An had, or was given, authority to manage and deal with the firm's properties, apart
from the presumption that a general partner dealing with partnership property has the
requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil., 513;
quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners may
contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates an obligation between the two partners, which consists in asking
the other's consent before contracting for the partnership. This obligation of course is
not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other. A third person may and has
a right to presume that the partner with whom he contracts has, in the ordinary and
natural course of business, the consent of his co-partner; for otherwise he would not
enter into the contract. The third person would naturally not presume that the partner
with whom he enters into the transaction is violating the articles of partnership, but on
the contrary, is acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No. 18, section
334, Code of Civil Procedure), and that the law has been obeyed (No. 31, section 334).
This last presumption is equally applicable to contracts which have the force of law
between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil., 509, 516) (Emphasis
supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real
estate of the firm. This argument is lamentably superficial because it fails to
differentiate between real estate acquired and held as stock-in-trade and real state
held merely as business site (Vivante's "taller o banco social") for the partnership.
Where the partnership business is to deal in merchandise and goods, i.e., movable
property, the sale of its real property (immovables) is not within the ordinary powers of
a partner, because it is not in line with the normal business of the firm. But where the
express and avowed purpose of the partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the firm form part of its stock-in-trade,
and the sale thereof is in pursuance of partnership purposes, hence within the ordinary
powers of the partner. This distinction is supported by the opinion of Gay de Montella1,
in the very passage quoted in the appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerente: cuando es conforme a los
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
fines sociales, viene limitada a los objetos de comecio o a los productos de la fabrica
para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa
parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario.
(Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal
right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has
ample power, as a general agent of the firm, to enter into an executory contract for the
sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
If the several partners engaged in the business of buying and selling real estate can
not bind the firm by purchases or sales of such property made in the regular course of
business, then they are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership at all, but a several
agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage * * * in buying and selling real estate" (Art IV, No. 1, Articles of
Copartnership), it can not be maintained that the sale was made in excess of her
powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in
McGrath, et al., vs. Cowen, et al., 49 N. E., 338. But the facts of that case are vastly
different from the one before us. In the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its
property was insufficient to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On that day, which was Saturday,
the plaintiff caused to be prepared, ready for execution, the four chattel mortgages in
question, which cover all the tangible property then belonging to the firm, including the
counters, shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness whereof, the
said Cowen & McGrath, a firm, and Owen McGrath, surviving partner of said firm, and
Owen McGrath, individually, have here-unto set their hands, this 20th day of May, A.
D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath, Surviving partner of
Cowen & McGrath. Owen McGrath" At the same time, the plaintiff had prepared, ready
for filing, the petition for the dissolution of the partnership and appointment of a
receiver, which he subsequently filed, as hereinafter stated. On the day the mortgages
were signed, they were placed in the hands of the mortgagees, which was the first
intimation to them that there was any intention to make then. At that time none of the
claims secured by the mortgages were due, except, it may be, a small part of one of
them, and none of the creditors to whom the mortgages were made had requested
security, or were pressing for the payment of their debts. ... The mortgages appear to
be without a sufficient condition of defeasance, and contain a stipulation authorizing
the mortgagees to take immediate possession of the property, which they did as soon
as the mortgages were filed, through the attorney who then represented them, as well
as the plaintiff; and the stores were at once closed, and possession delivered by them
to the receiver appointed upon the filing of the petition. The avowed purpose of the
plaintiff in the course pursued by him, was to terminate the partnership, place its
property beyond the control of the firm, and insure the preference of the mortgages, all
of which was known to them at the time: ... . (Cas cit., p. 343, Emphasis supplied)
It is natural that from these facts the Supreme Court of Ohio should draw the
conclusion that conveyances were made with intent to terminate the partnership, and
that they were not within the powers of McGrath as partner. But there is no similarly
between those acts and the sale by the widow of Tan Sin An. In the McGrath case, the
sale included even the fixtures used in the business, in our case, the lands sold were
those acquired to be sold. In the McGrath case, none of the creditors were pressing for
payment; in our case, the creditors had been unpaid for more than seven years, and
their claims had been approved by the probate court for payment. In the McGrath case,
the partnership received nothing beyond the discharge of its debts; in the present case,
not only were its debts assumed by the buyers, but the latter paid, in addition,
P37,000.00 in cash to the widow, to the profit of the partnership. Clearly, the McGrath
ruling is not applicable.
We will now turn to the question to fraud. No direct evidence of it exists; but appellant
points out, as indicia thereof, the allegedly low price paid for the property, and the
relationship between the buyers, the creditors of the partnership, and the widow of Tan
Sin An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts
assumed by the purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13 to
Sing Yee Cuan & Co.) are not questioned; they were approved by the Court, and its
approval is now final. The claims were, in fact, for the balance on the original purchase
price of the land sold (due first to La Urbana, later to the Banco Hipotecario) plus
accrued interests and taxes, redeemed by the two creditors-claimants. To show that
the price was inadequate, appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land was worth
P312,000.00. Taking into account the continued rise of real estate values since
liberation, and the fact that the sale in question was practically a forced sale because
the partnership had no other means to pay its legitimate debts, this evidence certainly
does not show such "gross inadequacy" as to justify rescission of the sale. If at the
time of the sale (1949 the price of P153,726.04 was really low, how is it that appellant
was not able to raise the amount, even if the creditor's representative, Yu Khe Thai,
had already warned him four years before (1946) that the creditors wanted their money
back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to
discharge the debts. But the lands were already mortgaged, and had been mortgaged
since 1940, first to La Urbana, and then to the Banco Hipotecario. Was it reasonable to
expect that other persons would loan money to the partnership when it was unable
even to pay the taxes on the property, and the interest on the principal since 1940? If it
had been possible to find lenders willing to take a chance on such a bad financial
record, would not Goquiolay have taken advantage of it? But the fact is clear on the
record that since liberation until 1949 Goquiolay never lifted a finger to discharge the
debts of the partnership. Is he entitled now to cry fraud after the debts were discharged
with no help from him?
With regard to the relationship between the parties, suffice it to say that the Supreme
Court has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs.
McMicking, 21 Phil., 243; also Hermandad de Smo. Nombre de Jesus vs. Sanchez, 40
Off. Gaz., 1685). There is no evidence that the original buyers, Washington Sycip and
Betty Lee, were without independent means to purchase the property. That the Yutivos
should be willing to extend credit to them, and not to appellant, is neither illegal nor
immoral; at the very least, these buyers did not have a record of inveterate defaults like
the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy
between the Yutivo firm and their component members. But no proof is adduced. If he
was such a victim, he could have easily defeated the conspirators by raising money
and paying off the firm's debts between 1945 and 1949; but he did; he did not even
care to look for a purchaser of the partnership assets. Were it true that the conspiracy
to defraud him arose (as he claims) because of his refusal to sell the lands when in
1945 Yu Khe Thai asked him to do so, it is certainly strange that the conspirators
should wait 4 years, until 1949, to have the sale effected by the widow of Tan Sin An,
and that the sale should have been routed through the probate court taking cognizance
of Tan Sin An's estate, all of which increased the risk that the supposed fraud should
be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan
& Co., (as subrogees of the Banco Hipotecario) in proceedings for the settlement of the
estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan
Sin An & Goquiolay" were solidary (joint and several) debtors (Exhibit "N" mortgage to
the Banco Hipotecario), and Rule 87, section 6, is to the effect that:
Where the obligation of the decedent is joint and several with another debtor, the claim
shall be filed against the decedent as if he were the only debtor, without prejudice to
the right of the estate to recover contribution from the other debtor. (Emphasis
supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of
the partnership and those of Tan Sin An personally, and a mortgage in indivisible, in
the sense that each and every parcel under mortgage answers for the totality of the
debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one used to obtain a
party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is
fraud at all, it can only be a fraud of creditors that gives rise to a rescission of the
offending contract. But by express provision of law (Article 1294, Civil Code of 1889;
Article 1383, New Civil Code), "the action for rescission is subsidiary; it can not be
instituted except when the party suffering damage has no other legal means to obtain
reparation for the same". Since there is no allegation, or evidence, that Goquiolay can
not obtain reparation from the widow and heirs of Tan Sin An, the present suit to
rescind the sale in question is not maintenable, even if the fraud charged actually did
exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.